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Justin Brady: [00:00:00] From Iowa podcast.com. I’m Justin Brady, and remember, 2021, you’re in startup land. You’re a PE firm, or you have done an m and a deal. That year was nuts and it’s been a little flat since then, but some of the deals are really, really, really big, kind of focusing on quality. I think. Maybe let’s ask Jason Stone. You are the m and a guy and objectively rank one of the best lawyers in American. Of course, you’re with our partner and our collaborator, Dentons Davis Brown. Thank you for coming on the show today.

Jason Stone: you. It’s a pleasure to be here.

Justin Brady: So is it, is this right? I’m not, the expert You are, but it does seem like 2021 was a freaking crazy time. Money was going everywhere. But also maybe valuations were a little inflated and maybe we’re coming down to reality and we’re focusing on the quality of the deal. Now, is this, is this

Jason Stone: Yeah, I, I think you’re right on. So 2021 was something that, uh, I hadn’t seen in my career [00:01:00] up to then I practiced for 25 years. I don’t think I’ve ever seen anything quite so crazy both in volume and deal values. We have certainly slipped on both volume and deal values, uh, but volume is increasing, uh, getting closer back to the 2021 mark.

Justin Brady: now it seems like investors are kind of taking the same approach that maybe, um, m and a people are, or people interested in m and a deals, which is. Quality focus. Like is this like long term? Is this a high revenue play? Can we see a very, very, very clear path to profitability and revenue because speculation is kind of out and quality is in. Is that a fair assessment?

Jason Stone: Yeah, I think that is a fair assessment. I mean, there’s a difference between the venture investing and the MA investing and that venture investing is much like investing in an option. Um, and so, um, you’re really looking at kind of very forward looking earnings and what the world is gonna be like, uh, long off in an m and a transaction when they’re looking for immediate [00:02:00] impact. In most cases, not always, but more often than not. And so, yes, quality of. The business, uh, and the earnings is very important in naming a context

Justin Brady: What are the hot industries you’re seeing right now in the m and a space?

Jason Stone: Well, um, with tariffs, uh, we saw a dropdown in kind of, uh, manufacturing and, and those items that are, uh, industries that are in cross border. Uh, but we saw a continued, uh, flow of deals in service industries that are domestic. So, for example, healthcare is still quite hot right now. Uh, it’s not generally impacted by cross border issues, uh, or tariffs.

Justin Brady: Healthcare meaning are we seeing like a lot of, uh, like the tech side or more of a hardware

Jason Stone: tech, it could be service, it could be hospital systems, it could be senior living. Um, just, uh, healthcare in general is still, uh, charging along fine.

Justin Brady: So is there a great deal of capital then available for these type of deals? It sounds like people are, it seems, sounds like there’s a lot [00:03:00] available

Jason Stone: Yeah, capital. Really, capital availability really isn’t a problem in the market. Uh, there’s plenty of dry powder and available capital. Um, certainly with rate increases, uh, over time that slowed the debt markets a little bit, but not significantly. There’s still capital that can be deployed for good deals.

Justin Brady: You did mention some of the international stuff, um, the kind of the trade policy in tariffs. So I wanna go into that a little bit further. How. How did these affect m and a? Like is this a just a temporary pause or is this something that’s going to be a little bit more permanent and felt through the next couple years?

Jason Stone: I’m afraid it’s more permanent than temporary. So to do a deal, both the buyer and seller have to see the same future. It doesn’t matter if the market is hot or it’s slow, they just have to see the same future. If. One sees, you know, rainbows, uh, and the other sees storm clouds. Uh, it’s hard to bring them together. Uh, and the issue with tariffs is it’s highly unpredictable at this point. And so it’s really hard for people [00:04:00] to feel comfortable that they can predict the future, which makes it hard to get a deal done. I think we have to get to the point that the market generally feels like the future is predictable to, to get a solid, um, non tariff affected deal market.

Justin Brady: And this is a problem across the pond essentially, if I can use that term like

Jason Stone: everywhere. Yeah.

Justin Brady: is an international breakdown that doesn’t necessarily apply, like you said earlier, doesn’t necessarily apply domestically, but internationally, the tariffs are actually having an in IM impact on these m and a deals

Jason Stone: yeah. We certainly had deals failed just because of tariffs. Um,

Justin Brady: because of

Jason Stone: yeah.

Justin Brady: They’re Just like, eh, you know what? ’cause the tariffs are very volatile. They’re off and on. We don’t know what’s gonna happen. And so people just walked away from the table and were like, nah, not worth it.

Jason Stone: Correct. I mean, how, if you’re a buyer in that scenario, how do you know if this is a good deal or not? When you don’t know what the tariff impact is gonna be in the next week or next month or next year?

Justin Brady: Goodness. Is this mostly deals I, I’m assuming, maybe, maybe I’m wrong, but is this mostly deals, um, [00:05:00] between like American companies in the eu or Is it also. Canada?

Jason Stone: yeah. Just yes. Yeah, yeah. It’s yes, yes, yes. The

Justin Brady: The answer to that is yes. Yes.

Jason Stone: a domestic deal can, can have impact. So yes, it’s, it’s just an issue, um, in industries that are highly tariff affected.

Justin Brady: I want you to go a little bit deeper on the fragmentation, instability, economic pressure. How about like, all these things are factors outside of just tariffs, right? Energy prices would be another one. How are these things playing into m and a deals?

Jason Stone: Well, I mean, every industry is gonna be different, right? So, uh, since 20, in 2021, everybody was hot, right? And since 2021, it’s really been dependent on who you are, where you are, what industry you’re in. Some are hot, some are cold, um, and certainly energy prices are gonna have an impact on some industries and transactions and have no impact on other industries or transactions. Now. Having said that, I think that is a little more predictable. And again, predictability is key. The buyer and seller have to see the [00:06:00] same future, and as long as they can feel comfortable doing it, that’s okay. They can ride out the storms of variants and, uh, market aspects.

Justin Brady: You have said that twice, uh, Buyer and seller have to see the same future. I’m assuming this is a major sticking point for either people being acquired, people acquiring,

Jason Stone: well, yeah, I mean, um, it’s hard to say what the reality is gonna be in the future, right? Like, uh, if we came off of. For example, we came off of the high that you referenced on the, uh, beginning, uh, in 2021. I mean, valuations were through the roof,

Justin Brady: Yeah.

Jason Stone: um, you know, at some point, um, that couldn’t continue. Um, and

Justin Brady: Yeah.

Jason Stone: sellers though were not quick to adjust, right? They, they still saw what happened to their peers and had expectations regarding valuations. And so they would carry those into the market. The, the buyers, uh, more quickly adjusted and it’s hard to bridge those gaps, um, when there’s this [00:07:00] difference of opinion, but.

Justin Brady: So you’re, you’re saying 2021. Um, for people working on an m and a m and a deal right now, 2021 is actually a barrier to getting these deals done because people have these artificially inflated ideas of what deals should look like.

Jason Stone: Well, we’re far off, off 2021. I hope that’s not, uh, a huge barrier. It was more close in 20 22, 20 23. It just takes a little bit of time to adjust, but. The concept is core, like the buyer, as I said, and seller, have to be able to align, uh, in the reality of what they think the future’s gonna be when we do an m and a deal. I mean, in essence, uh, a seller theoretically wouldn’t sell unless they got full fair market value for their business. The buyer theoretically wouldn’t pay more than full fair market value. It doesn’t work this way exactly in the marketplace, but that’s generally the net present value of the future cash flows of the business. And so, you know, what are those future cash flows? It’s, it’s, it’s hard to predict, uh, and opinions [00:08:00] about the world and what it’s gonna be like are gonna play differently for buyers and sellers. And at many times they can align pretty easily and other times they can

Justin Brady: you probably read about this, the, the, uh, shoe company Allbirds deal. Like they were valued, valued at like, what was it, 4 billion,

Jason Stone: 39 million something

Justin Brady: and now, they’re rea and now they’re selling for 39 million. So that’s kind of the gray area you’re talking about is like the, there’s a big gap between valuation unless someone’s going to Actually, value your organization

Jason Stone: yeah. Yeah, that very true. And, and m and a is hard, right? Like it serves a, a very good purpose. Uh, if it’s strategically done. Um, the, the buyer has to understand why they’re doing it. It has to align with their strategic vision. They have to think about how to implement the particular deal to make sure that they’re gonna achieve their strategic vision. There’s so many things that can go wrong that often it does. And that’s a good example of, of a deal that just didn’t work.

Justin Brady: so what is driving these deals, and generally from a. 30,000 foot [00:09:00] view, how does the process work? How should people involved in these deals think about this?

Jason Stone: Yeah. So, uh, in the Iowa market in particular, uh, we are really good about building up small to mid-size businesses that are very solid. Um, they often have a hard time of moving to the next level. Um, and so what we often see as a, a sales side deal coming out of Iowa, where we have a transition often. Um, so it may be that, uh, the owners are getting close to retirement age and they haven’t. Been able to internally transition the business, or it may be that they’re just coming up against economic pressure of, uh, economies of scale. Um, they aren’t able to access credit markets the same way that a private equity backed business is. And so they feel the pressure to, to transition the business somewhere off. But it’s usually kind of a external pressure, um, in the Iowa market that we see that drives sales. Now, on the buy side, it’s [00:10:00] gonna be all sorts of different things. Um. Depending on what the buyer is and are they a financial buyer? Are they a strategic buyer that’s competing, um, with the target? Uh, they’re very different motivations that can apply on that side.

Justin Brady: the problem a lot of people run into is they kind of treat you like an order taker and instead they should have probably brought you in and like built a team around this process.

Jason Stone: Oh yeah. Team is critical, right? So, um, these are complex deals. It’s not like buying a car or buying a house. Yeah. Um, you really, uh, need to do a, a deep dive into the target business, understand what it is that, uh, it’s buying to make sure that aligns with your expectations and, and that does require a team. Investment bankers, uh, on a deal of any size are critical to either market the business if you’re on the sales side, or help evaluate the business. If you’re on the buy side, you’re gonna need accountants. Uh, they’re gonna be able to, to look at the financials, uh, either prepping them for sale or evaluating them on the [00:11:00] buy side. You’re gonna need lawyers, uh, that can understand how the deal mechanics work and coordinate with all the other team players, then you’re gonna need a solid internal team to help manage the, the transaction. Because, you know, all the external advisors, however good they are not in the day-to-day business that is being either bought or sold. So it’s key to have those parties at the table too. But yeah, it’s a, it’s a, it’s a team effort for sure. And the earlier you start, the better, uh, you, as you indicated. Yes, if, if you come in and like have everything baked, and that happens sometimes. Sometimes we have situations where clients will show up with a letter of intent that’s already signed. There’ll be material issues with the letter of intent and we’ll have to try to work out of those uh, holes as we move the process forward. It would’ve been a lot better to be involved earlier in the process to avoid the hole in the first place.

Justin Brady: I can’t let you outta here before asking what are the things that typically derail a deal?

Jason Stone: well there? There’s a lot that can, I mean, my experience, most deals [00:12:00] actually, if they get past a certain point, there’s uh, uh, there’s momentum, uh, and a desire to close, and buyers and sellers can work through most issues. But having said that, there are deals that that fail. I was dealing with one this morning, uh, that particular one failed on, um, um, the credit markets basically. Um, uh, there’s some unique aspects associated with that, but, um. Deals can fail from a diligence standpoint of, um, you know, there may be, uh, material unknown financial issues, and it’s usually financial. I mean, when you get down to it, the legal aspects can usually be worked through, although not always, it’s usually more of a, a financial issue. Um, the buyer expected a, a, a certain thing, um, that just wasn’t delivered when they opened up. Under and looked under the hood. The other thing we can see too, though, is there are players in the market who aren’t necessarily sincere. They may come in really, [00:13:00] they may come in at a very high price, uh, on the front end, uh, and then use diligence findings to try to push it down, um, at which may create some fiction for the sellers. Uh, it’s not super common, but it does happen.

Justin Brady: In your view, do you mostly deal with a bunch of win-wins or is, or do you have to come in aggressively on some of

Jason Stone: Well, no, I mean, that is the goal, right? I mean, this is not litigation. Um, this is not a winner take all situation. Most buyers and sellers are friendly when they come to the table and they want to make the deal work and they wanna make it work in a way that’s, that’s good for both. I think that’s particularly true in the Iowa market. So in the Iowa market, um. It’s not big, it’s not deep. It’s very likely that the players on both sides of the table are gonna encounter them, uh, each other again in another deal and have in the past. And so there’s a relationship component to that. Whereas if you’re dealing with a deal in [00:14:00] New York, um, against somebody in New York and you have a financial buyer who’s not in the industry, um, it can be very transactional. And so the, the deal can take us slightly more. Aggressive tactic in that case. But um, in general, people are trying to hit the win-win and that, that’s the goal, to find a way and a path to hit the win-win.

Justin Brady: Jason, so Jason Stone, the m and a guy. Can we put that on your business card? Now, the m and a guy at Dentons Davis, Brown was one of the best lawyers in America for 2026. Congratulations on that, by the way, And thank you so much for coming in the Iowa podcast.com studio.

Jason Stone: it’s been my pleasure. Thank you for having me.