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John Warrillow: Mitchell Reichgut is our next guest, and a couple things to be on the lookout for here. Mitchell has decided to sell his business in two parts. The first part to a private equity group, but he carried some of his equity forward, and then ultimately they sold it again more recently in 2018, and he continues to work in the company going forward. And I think it’s an interesting opportunity for folks, where we think of selling sometimes as a one off event and then riding off into the sunset. In this case, Mitchell chose a more evolutionary process, selling, again, parts to a private equity group, agreeing to stay on, keep some equity in the company, and then ultimately selling again, but again agreeing to stay on. More evolution than revolution. He shared some really interesting advice around how to evaluate potential investors in your company. Some really tough questions that he asked his investors, and I think really sound things to remember as you evaluate potential exit options, which may include a private equity deal. Here to tell you the rest of the story is Mitchell Reichgut.
John Warrillow: Mitchell Reichgut, welcome to Built to Sell Radio.
Mitchell Reichgut: Nice to be here. Thank you so much for having me.
John Warrillow: Yeah, no, not a problem. So tell me about Jun Group. What did you guys, or what do you guys do?
Mitchell Reichgut: Jun Group is a company I started out of my house many years ago. We’re an advertising technology company, and our job is to get millions of people to watch videos across different devices from Fortune 500 brands. So you could see a pharma ad, a fast food commercial, all kinds of things. And typically we run in what we call MoCa, mobile casual games. So apps on your cell phone. And instead of interrupting you with an add, you opt in when you’re ready, and in return you get access to content or game points or something else for your time.
John Warrillow: Okay. So this is gonna be the worst interview ever because I don’t game, I know nothing about gaming, and I don’t even let my kids really game. So I’m gonna be the worst … Okay. All kidding aside. I do have an iPhone, I have seen people play games on a phone before. So if I’m playing a game, how would you insert an advertising message into that experience? I’m confused?
Mitchell Reichgut: Well, games are so interesting, because they are wildly, crazily popular. Something like 150 million Americans play every single day.
John Warrillow: This is just your way of saying that I’m a loser.
Mitchell Reichgut: That was my point, yeah.
John Warrillow: Okay, got it. Just to be clear.
Mitchell Reichgut: I love to insult people when they invite me on their show, because that was really where I was going. No but … I mean, if you … I’m fond of saying I take the train from New York into Connecticut every day past some very wealthy towns, and you see people in $3,000 suits playing Candy Crush and Crossy Road in every chair. So if you look around, you’ll see they’re pretty popular. And what we love about them is they’re totally brand safe. Imagine a puzzle game, or it’s Words With Friends, something like that. And they’re so broadly popular that we can reach over 100 million people and all kinds of different demographics. I know you’re not-
John Warrillow: Okay, so I’m playing … Yeah, so I’m playing Crossy Road on the train to Connecticut. How would I see an ad from one of your clients as I’m playing the game? What would that look like?
Mitchell Reichgut: Each game developer is very sensitive about their users. You know, it costs a lot of money to get somebody to download your app and to keep using it. So they really don’t want it to be a bad experience for you if you have chosen to do that. So they will determine when and where that interaction happens. Typically, it’s a place in the game where you know you can go when you wanna power up, or you know you can go to this place to see more content. It’s very much like what happens in Hulu, where you can front load the ad experience and then enjoy the stuff you wanna enjoy.
John Warrillow: Got it. Okay, great. So can a user, again, this is really for my own edification, could a user upgrade to a paid version of the app where they don’t see your messages?
Mitchell Reichgut: Often our app developer partners do have paid versions. But the beauty of this is it’s not annoying you, it’s never gonna interrupt you. It’s there when you want it. And because of that, the app developer gets tremendous value, because as I already indicated, they’re conscious of their users and wanna protect them. And our advertiser gets a wonderful value because the only people that are participating in their brand ad have chosen to do so. And we have all kinds of targeting techniques that we will tell our advertiser this is an 18 to 34 year old female, and we can be really specific. She cooks with organic ingredients, or she’s in the market to buy a car, or whatever it is. And that’s good for the advertiser. It’s also good for the person, the recipient, because they’re gonna see a message that’s relevant to them, and that’s what it’s all about.
John Warrillow: Yeah, for sure. So how do you make money? What’s the economic model? Who do you charge and how much … How does that work?
Mitchell Reichgut: We charge our clients … It’s kind of a pay for what you get model. It’s called a cost per engagement. So maybe they’ll pay us when somebody finishes a video or it’s a little cheaper to pay when the video just starts, and we have very high completion rates regardless. Some of our clients will pay for a click to their website after a video. All kinds of different mechanisms there. But the main thrust of it is that you get what you pay for and you don’t have to pay in advance for something that you might not enjoy the benefits from.
John Warrillow: And the client’s responsible for the creative and the ad?
Mitchell Reichgut: Most of the time, yes.
John Warrillow: And so how do you protect against crappy creative?
Mitchell Reichgut: Well, it’s funny that you ask that, because I’m a former art director. And when we started this business, I thought I knew pretty clearly what was “good creative” and what was not. And yet, what I learned pretty quickly is that I don’t always know what’s best. Because let’s imagine a really unexciting project for a discount tomato sauce. Well, a side by side about how thick and rich and juicy this tomato sauce is might not be very interesting. But if you’re a mom on a budget, and you can get something with quality ingredients and it’s available in your local store, it might actually be pretty interesting to you. So we have seen things that you or I might say, “Well that’s not a very creative ad, that’s not very good,” we’ve seen those pieces of creative be exceedingly effective, especially when they’re targeted properly.
Mitchell Reichgut: And I’m fond of saying how and when somebody finds your creative in today’s market is as important as that creative. Because if it’s some pop-up ad or it’s not relevant to you or it’s in a website where it doesn’t belong, it’s to be even irritating or off putting to that consumer. Whereas if you’re finding it in the right way and you’re discovering it on your own under your own power when you’re ready, it can be very powerful.
John Warrillow: That’s interesting. In essence though, if you’re paying for someone to complete the viewing of a video, I know that’s only one of your models, there’s other models that you’ve got. But at some level you are almost co-investing with your customer. Because if they do have crappy creative that doesn’t resonate with the 34 year old mom or whatever, then you bear some of the brunt of that.
Mitchell Reichgut: Well, we’re pretty confident. We’ve been doing this for a long time. And we have some tremendous, consistent numbers across, we work 15 or 20 different vertical categories of different kinds of brands. And we know consistently we can get 90 something percent of people to watch to the end.
John Warrillow: Really? That’s incredible. That’s amazing. And that’s really about right message, right audience, matching those two things up.
Mitchell Reichgut: Well, partially. See, the easy part of what we do is getting somebody to complete because you’re gonna get something at the end. And that’s the biggest knock. This whole system, we call it value exchange. Other people might call it rewarded advertising. And people say, “Well, it’s bribery, of course they’re gonna watch until the end. They’re getting something for it.” So that’s the easiest thing for us to do.
Mitchell Reichgut: What’s harder, and what we still do consistently, is after the person’s gotten their reward, after they’re done, they’re ready to go back to their game, they’re ready to go back to their content, whatever it is, we still get two or three or sometimes five or 6% of people taking actions afterwards. They’re visiting our clients’ websites, they’re liking them on social media, they’re downloading coupons. That two or 3% is five times higher than the industry average.
John Warrillow: Yeah, that’s huge.
Mitchell Reichgut: And we do it consistently. And to us that’s the proof that we’ve made the connection with the targeting and everything else.
John Warrillow: Okay. So I think I get the business. You mentioned that you started this thing out of your house. How did you finance the growth of it? Is it a service model? Did you need a lot of capital?
Mitchell Reichgut: You know, we did not need a lot of capital. It was a service model. When I started it out of my house, I had no idea what I wanted to do with myself. I had just left a really big job at an international ad agency, and here I was with a couple of kids and a mortgage and a cat and the whole thing, and no way to make a living, because I had become very disillusioned with the industry I was in. So I just started to do the things that I knew I was good at. I could create ads, I could do brand strategy, I could build websites. And after a year or two of that, I found out I was quite good at it. Never really set out to be an entrepreneur, it was never a dream of mine. But I did like it, and I liked the control that it gave me. And as difficult … And it was very difficult in those early days. But there was a comfort that I had because it was taking all of the politics and all of the stress of not being in control of things out of my life.
Mitchell Reichgut: Over time, as I got into it and I committed to it, I started learning … This is the formative years of ad tech. I don’t even think it was a word back then in 2001, 2002. Beautiful it started learning about the technology and getting really into it. And this model evolved over time. And it was meeting some smart people, a few of whom became my partners. And it’s funny, when you commit to something and you’re open minded about it, it can take you to places that you never thought you would go before.
John Warrillow: So the partners, you shared equity with them or did you … Partners in air quotes. Did you guys divvy up some of the equity together?
Mitchell Reichgut: No, I did definitely divvy up the equity, and I brought in a few people that I knew and trusted. And at one point there were four of us that ran this business, and the four of us ran it together successfully for many, many years. Now there’s two of us after a few exits, which is intuitive. But it’s like a marriage. It takes a lot of work.
John Warrillow: Yeah. I’d love to dig in there. So you got … Let’s get into the exit, because you got … You did it in two parts. And even before we get to the Halyard deal, I’d love to go even a step back. Because at one point you considered potentially venture capital as a financing vehicle. Maybe talk a little bit about what precipitated that, and then how you evaluated those VC deals.
Mitchell Reichgut: Sure. Well, you can imagine me in my house with nothing, and going and getting a job here and a job there, some regional advertisers, a few national advertisers. Built some websites, developed this technology, gave it away for free a couple times as proof of concept, by hook or by crook. And you fast forward a few years, now there’s five or six of us in a little hovel on 39th Street in Manhattan, this terrible little office. And we’re making $1 million a year call it, back then.
John Warrillow: Making, you mean revenue?
Mitchell Reichgut: Revenue, right. Top line of the company. So scraping by. And growing, and seeing some promise. And along comes a venture capital firm. And they’re promising you $10 million or $15 million as they do for a small minority share of the company. And it’s an enormously appealing thing.
Mitchell Reichgut: I had been around long enough to have seen that go right and to see it go wrong up close. And I was savvy enough I guess, or experienced enough to know what the odds are of success. And we just felt at the time that for all the drama and trouble of raising a round of capital, we could go and get some clients instead. That was our mindset at the time. Because not only the VC’s, but you have angels and you have all these different options open to you. And it’s so much time and energy that you have to put into that. We just felt like, my god, if we took that time and energy and we just went out and sold, we could sell four, $5 million worth of stuff, and wouldn’t that be better?
Mitchell Reichgut: That’s what we wound up doing. And we paid a heavy price for that. But I also think there were some significant benefits. I’m fond of saying you pick your poison, and that was the path that we chose.
John Warrillow: What was the price that you paid for not accepting that VC deal?
Mitchell Reichgut: Well, a lot of our competitors and frenemies in the industry, because we actually really like these guys, knew them quite well, went the other route, and you could see them exploding in terms of people, and they would get all this press, and they would have a high profile, and our clients all knew who they were, and very few people knew who we were because we were small. They could make mistakes and hire a bunch of people and then let them go, whereas for us to make a mistake on a salesperson for instance, could literally put the company out of business. So we were much lower profile. I’d say that we probably weren’t having the same kind of salary enjoyment that our competitors … We weren’t making a lot of money sometimes. At various points, we were paying our salespeople more than we were paying ourselves.
Mitchell Reichgut: And it was slow. It’s just slow growth. And that could kill you. It can also help you, depending on the circumstances. The benefits, however, were tremendous. We were creating our own company, we answered to no one, we became disciplined, rigorous business people, we learned a ton. And we were making money every single month. Profitability. And that, we were very proud of. For years and years and years, this company, and we are today still profitable.
John Warrillow: Fantastic. So let’s get into the Halyard deal, because in 2015, you chose to sell I guess a portion of your company. Maybe talk a little bit about what triggered that.
Mitchell Reichgut: Absolutely. You know, you and I were talking before we started here about investment bankers, and one of the things that was happening to us as we rose in prominence slowly over the years was investment bankers became really interested in us, and we got to meet little ones, big ones from all over the country, sometimes all over the world, pitching us, “I can help you sell your company, I can help you sell your company.”
John Warrillow: How big are you at this point? In terms of revenue or number of employees. Just give us a sense of how bit you are at the point you’re getting these pitches.
Mitchell Reichgut: Okay. I mentioned in the early 2000s, we were five or six people. I think fast forward to 2013, 2014, we’re maybe 20, 25 people. We have a little office in Chicago by then I believe, playing around with some people on the West Coast, not very successfully at first. And growing a company. I would say, I use the word disciplined, in really responsible, disciplined way.
Mitchell Reichgut: So we started to meet these people, and investment bankers are great teachers, and they see a lot of things that you don’t see, and they can introduce you to people, and that’s how they build a relationship with you and show you the potential value they could lead by saying, “Oh, I bet you’d love to work with this client. Here. I’ll introduce you.” And they do.
Mitchell Reichgut: We started to get a sense of what a sale would be like. And it was never really on our radar. We created the company because we wanted to have a great place to work, and we believed in what we were doing, and really old fashioned values about treat your people well, create great products, solve problems. We were big believers in that. And yet, the promise of vast riches and fame and fortune started to dawn on us. And I’d say by 2015, our profile slowly, methodically had come up to the point where we were really getting some people’s attention, including some of the really best investment bankers. And there are some that are younger and less established, there are some that are just huge. And then there are elite ones. And the really elite ones were saying, “Nah. We like you, but you guys are not really ready for us yet.”
Mitchell Reichgut: What we started to hear from some of the ones that we thought were the top was, “You know what? I think I could sell this, and I think you guys could benefit and do really well.”
Mitchell Reichgut: One of these groups was a firm called Jordan Edmisten. And we had known one of the principles there, a guy by the name of Tolman Geffs for years, and thought really highly of him. And he had tutored us and spent a lot of time with us, and we really thought he was one of the better investment bankers in our sector. And he started saying, “Listen, we could run a process for you, and here’s what it would look like, and here’s what you’d have to do.” And he started telling us about private equity firms.
Mitchell Reichgut: I already talked to you about VC’s. Private equity is a little bit different. And as he started to teach us about it, we became really interested in it, and we decided to run a process in 2015, and it was not an easy decision, but all of us, there were four of us at that point, unanimously felt it was the right time for a whole host of reasons I’m happy to get into. And we went with it, and had a number of different opportunities. And the private equity firm, Halyard Capital, stood out among them for a number of reasons, and we wound up doing a deal. And it turned out to be one of the best things we ever did.
John Warrillow: So tell me about, when it comes to private equity in general, you mentioned that the firm, your firm, Jordan Edmisten, was complimentary or suggested private equity. What was it about a PE deal that sounded attractive to you guys?
Mitchell Reichgut: Well, the investment banker said there are a bunch of ways private equity functions, and there are lots of different kinds of private equity firms, and I don’t consider myself an aficionado here, just the experience that I had. Halyard was a relatively small group. I don’t know financially how they would compare, but small in terms of people. There were four of five of them that are principles in the company. And we really got along with them. And it felt like wow, these guys are coming, even in the early meetings with the insights about our business and probing questions that are making us think differently about our company. And we really felt like this was a group that could help us.
Mitchell Reichgut: That was so important, because there are lots of ways to get investment, and money is one thing, and it’s great. But if … The thing is you have to show up every day, and people talk about the word exit, and most of the time it’s not an exit, it’s just an evolution, a next step. And you think about all the headlines about how great this deal was or that deal. But the way we were thinking of it is okay, we do some transaction, these are people we’re gonna have to work with every day, they’re gonna be partners, family. And we really liked the people, and respected the brains the ability. For me, I’m not the financial guy. I could watch Brendan in that group look at a spreadsheet and see pictures in his head, and he would ask us all these probing questions just based on a bunch of numbers. And it was exciting, the prospect of working with them.
Mitchell Reichgut: That’s one of the reasons, one of the main reasons we did it.
John Warrillow: Got it. And did you get offers from other, non private equity groups, strategic buyers or anyone else?
Mitchell Reichgut: You know, we had a lot of interest at that point. And the strategics at that point weren’t really seeing us the way … And that was another thing. Halyard had the vision to see what we could be. And the strategics at that point were looking at us literally as what we were. And we were smaller back then, much smaller. So it wasn’t as exciting financially or structurally. We didn’t see the strategic at that point that could light us on fire and help us explode. We saw some deals. And we made arguments for them. But the private equity route was compelling. Because we thought, wow, this thing is like putting a turbo jet on the back of the company. They’re really gonna help us and add something that we haven’t had.
Mitchell Reichgut: We have never for instance had a board of directors or a board of advisors, and I was fond of saying we had been drinking our own Kool-Aid for a long time, and gotten into these patterns working together for so many years that we could convince ourselves something was right. But the guys from Halyard would really challenge us and push us and make us explain why we were compensating people this way, or why we had structured the technology that way. And it was a great discipline for us.
John Warrillow: There are a lot of horror stories around private equity, so I’m really pleasantly surprised to hear a really good story, like it was a very positive experience, it sounds like. Talk a little bit about the deal if you can. I know we can’t talk about the actual price they paid. But I’d be curious to know how did you guys structure it? I’m assuming you stayed on as investors in some level, like you were asked to keep some of your equity in the business?
Mitchell Reichgut: Yes, the partners had significant equity in the business, and Halyard purchased significant equity in the business. And we had an understanding right from the very beginning that this was a partnership, and that it was gonna fail or succeed based on our ability to cooperate and respect each other and come to good decisions and leverage each others’ strengths. And having worked with three other partners for so many years, I can say that we were pretty good at that kind of thing. We’re very good at being a family and having a productive family spat and getting it all out on the table and not taking it personally.
John Warrillow: What’s the secret in your experience for doing that? Because I think, you’ve had a great experience. I could probably list out 10 other people who have had an absolutely horrific experience, where the private equity company comes and starts to graft some management theory onto their company, and the whole thing becomes this acrimonious relationship that’s totally dysfunctional, and the owner ends up suing the … I mean, it’s just a disaster. But your case it worked. What was your secret sauce? I mean I’m sure the guys are good and reputable, but what did you personally do that made it work?
Mitchell Reichgut: A couple of things. First we did our research, and I already mentioned I’m not a finance guy. My partner Cory is a Wharton MBA, so much more sophisticated around these types of deals than I was. And our investment bank was terrific also in educating us as I’ve mentioned before. But I spent a lot of times reading about private equity firms, and that is not a book I would normally pick up.
John Warrillow: Poor guy.
Mitchell Reichgut: So going in with our eyes open was so important, knowing what to expect, asking them tough questions, you know how-
John Warrillow: What did you learn? What kind of questions did you ask them?
Mitchell Reichgut: Well, what are your expectations, where do you want this to go, how do you see it growing, what would you do if this went wrong, how would you deal with it if we were underperforming? And we checked the references, and I said, “I don’t wanna hear of guys that had a great time with you, I wanna hear some people that struggled.” Because what if we struggle? How does that happen? And we asked a lot of really hard questions on both sides. And they asked us hard questions.
Mitchell Reichgut: Going into it with our eyes open was vitally important, knowing what their expectations were, how they wanted to run the business, how it was gonna change, what they could bring, what they couldn’t bring, what kind of decisions would they leave to us and where would they wanna be involved. Lots of details for months.
Mitchell Reichgut: And then the other thing I think that was so important was the dedication to it. That’s one thing the Jun Group has always had, which is just we will not stop. We’re going to succeed. I don’t care what happens, I don’t care how long it takes, I don’t care how many gut punches I have to take. And that has been our mantra since day one. That’s how we work.
Mitchell Reichgut: I don’t wanna paint this picture for your listeners like this was some panacea. We had lots of fireworks, and times that we really disagreed with Halyard and disagreed with the partners. We had to part with one of our partners during the Halyard relationship. It wasn’t easy for anybody.
John Warrillow: What happened?
Mitchell Reichgut: We’d worked together for a long time and it was just time to part ways. And not in an easy way. But again, we had-
John Warrillow: How did you deal with that as … How did you deal with the partnership element, because they own equity. How did you unwind that?
Mitchell Reichgut: Well, we had papered it really well. And again, we … No fooling around, we spent months and months with the partnership agreements, and Halyard knew the details of those agreements just like we did, and just like this other partner did. Even though it wasn’t pleasant, there was no big fireworks because it was all written down, and written down very carefully. And we had discussed it at length. So in this fairly negative scenario, everybody worked out well. And it was … We parted on good terms and worked through some of the numbers and some of the pieces of it in a really positive way. And the planning around that is what made it work. Because-
John Warrillow: Because you thought about it in advance.
Mitchell Reichgut: Way far in advance.
John Warrillow: Yeah. How do you … Yeah, I mean again, I think people would be very curious. I mean, you say you’re not an aficionado on these things, but I think you’re a deep aficionado on making a partnership work. You’ve made a successful partnership work at Jun Group, you’ve obviously made it work with Halyard Group in a circumstance that doesn’t always. So I think you’re a great person to ask about partnerships. When they fail, when your partner in this case, you needed to part ways, how do … Again, if I’m asking you questions you can’t answer, I totally appreciate that. But how do you raise the money to buy them out? Do you have to actually write a check? Do they carry their equity to some exit? How does that work in a partnership? I’ve never had one so I don’t know.
Mitchell Reichgut: Yeah, well it’s different in every situation, and that’s what you have to contemplate. And I think that’s where a lot of entrepreneurs really go wrong. Because let’s say you’re in business with your friend. It’s very uncomfortable to sit there and say, “If I have to fire you, what happens?” Or, “If you quit in the middle of something, what’s gonna happen to the company, and how are we gonna determine how much your equity is worth, and how are we gonna determine who gets a check at what time, and what if you wanna leave and the company doesn’t have any money? What happens in that scenario?”
Mitchell Reichgut: We, and all four of us at the time spent god only knows how many hours hashing this stuff out. And it can be acrimonious at times, because you’re talking about … You’re not talking about fairy tale, rainbow and sunshine opportunities, you’re talking about situations where things are really going awry, or two people that used to be friends are no longer friends. What happens then? That’s why the determination is so important. Because you have to just be determined to get through it.
John Warrillow: Okay, so you may not be able to speak specifically about this one employee situation, which I totally appreciate, but if you and I were at a bar and talking about a situation, and I was thinking about going into a partnership with a friend of mine, what advice would you give me around the payout associated with one of us choosing to leave? So let’s imagine that we’re both partners, we’ve taken on some investments so there’s an investor at the table, and one of us decides, you know what, I’m out. Or I need to be out. Do I get a check, or how would you structure it so that there was … That there was enough money to pay that person. I’m interested in the mechanics of structuring it.
Mitchell Reichgut: Sure. You know, if you’re writing a business plan, there’s a thing called the sensitivity analysis. You say, on one end of the scale, the company’s in terrible shape. On the other end it’s booming. And then here are three or four scenarios in between. When you sit down with your partners to create a legal contract, you wanna do that too. And you wanna think of as many scenarios as you can, especially negative ones. And positive ones too. You wanna talk about who has the power to make the decision, how many people does it take, and a great lawyer can really, really help you. And we’ve worked with a number of attorneys through our time here at Jun Group, and had some terrific ones that helped us with this.
Mitchell Reichgut: I can’t tell you that one structure is right for everybody, because it depends on the type of partnership and the type of investment and there’s all kinds of dynamics. But to the extent that you can think it through and really flesh out these scenarios, you’re gonna be so much better off later on when the fur is flying and maybe tempers are up and there’s real money at stake. That’s not when you wanna be figuring it out.
John Warrillow: No, for sure. So with the sensitivity analysis, is that a … You said a scenario where the company’s struggling versus booming. Are you putting objective, quantitative measures to define booming versus struggling, or is that a qualitative interpretation? I’m curious about the sensitivity analysis.
Mitchell Reichgut: Yeah. Well, sensitivity analysis, that’s a finance word, I’m just transposing it here into the legal world in a founder of contract. You can put real dollars in it, absolutely, and have thresholds. I think what typically happens, what I have seen, it’s more like a formula. You’d say the company’s savings versus pipeline. It can actually be quite complex in some of these contracts how the numbers get determined. I think rather than saying $5 million, you’d probably say profitability versus length of time the person served, et cetera, et cetera. And that’s how you would make the calculation to determine what the person gets paid or what the company over X number of years pays out or whatever.
John Warrillow: Got it. So when you looked at the Halyard deal for acquiring your company, what was your assessment of it when you first saw the paperwork that they put to you, the letter of intent I guess it was, what reaction did you have to it?
Mitchell Reichgut: You know, if you haven’t gathered by now, I’m kind of a pragmatist, and we were pragmatic. That’s the other thing. A lot of entrepreneurs will say, “My company’s worth $900 million.” We kinda knew what we were worth. And we knew from talking to a lot of investment bankers and doing a lot of diligence, and going through this process you hear from sometimes multiple parties, I think I can’t even remember how many in that process we heard from, but the market tells you what you’re worth. And in that case, we had got it pretty right, everybody else was saying, “You know what, Jun Group is worth X,” and that’s what we thought.
Mitchell Reichgut: It’s the research aspect of it, and the work you put into it in terms of preparation, I think brings you to a good outcome. So when we’re talking to Halyard and the other people that were part of that process, we’re all kind of on the same page about what we’re worth. And it became which is the better fit for us, who’s gonna help us grow faster, et cetera, and less about how much money is this gonna be.
John Warrillow: Got it. And when you come to knowing what you were worth and hearing from the market, other potential investors what they thought you were worth, what sort of valuation methodology are they using to arrive at a number?
Mitchell Reichgut: Well, sometimes it’s top line revenue, sometimes it’s bottom line revenue. And again, I don’t consider myself an expert here, just from my own experience having gone through two of these processes, first with Halyard Capital and then with Advantage Solutions more recently, different kinds of companies like to use different valuations for their own purposes. A larger company like Advantage, they’ve made many purchases, they have a system, they know how to do it. Halyard might be more flexible. They certainly have a profile of the kind of company they like. But [inaudible 00:36:35] and company there, I think they could look at a company and decide there’s lots of different ways to approach it, and they have that freedom because they’re a small, independent group.
John Warrillow: Got it. So your sense is even the buyers that were coming to you, some were using a multiple of revenue, others a multiple of profit. There was no consistency per se.
Mitchell Reichgut: There was consistency I’d say by the type of buyers. Everyone kinda looked at us the same way. We were looking at a lot of different kind of strategic, back then in 2015, we thought maybe a big ad tech company could buy us, or maybe one of the agency holding companies could buy us, or maybe a financial firm could buy us. And each of those sectors all approached us at the same way.
John Warrillow: Which is?
Mitchell Reichgut: I’m not saying they approached … Each sector, some of them would look at [inaudible 00:37:24] or some of them would say, “Let’s look at the top line.” But overall, you really, at least for us in our experience, we were seeing a pretty strong consensus among all the different players about what we could expect out of it.
John Warrillow: What the ultimate value in their minds was going to be.
Mitchell Reichgut: Mm-hmm (affirmative).
John Warrillow: Did you talk to Halyard about their exit strategy out of the investment, how they intended to exit?
Mitchell Reichgut: We did. And we spoke at length about that. And they had a specific philosophy. We liked the philosophy. They were pragmatists, same as us. They really saw our business a little bit differently than we did. They brought a different perspective to it. But they understand it. And that was very important to us because, hopefully for your listeners I explained it simply. I will tell you it’s a rather complex operation. And these were guys who could demonstrate in a short period of time even though they were not ad tech guys, that they could play ball there and they could pick it up quickly and actually lend some value.
Mitchell Reichgut: So when we talked about where it could go in three to five years, they were pretty … I thought pretty spot on about what was realistic and what we could actually expect from it. And that turned out to be critical later on, because we didn’t have crazy expectations. None of us did.
John Warrillow: But they were clear that, look, if we’re gonna invest our capital, we want to sell this company at some point in the future. We’re not a family office that wants to hold for 50 years. They were clear that there was another exit down the road?
Mitchell Reichgut: Yes, and they were also clear that they could be flexible, and that they did not expect things to happen in a storybook fashion. And at times, it wound up being a three year engagement with them, just like we all drew it up. But at times we were thinking, you know what, this might be five or six years, maybe we’re not ready. And maybe the market is this way or that way. And they were flexible and really pragmatic about it. So that was something we always appreciated in our many discussions with those guys.
John Warrillow: So you ultimately sold the … After Halyard invested in 2015, you then sold the business I guess again, if you will, or Halyard exited, if you will, in 2018. Maybe we could talk briefly about that exit.
Mitchell Reichgut: Absolutely. It was interesting, because-
John Warrillow: Go ahead.
Mitchell Reichgut: Yeah, once again, how do we approach it, are we gonna work with an investment banker, which investment banker? We’d had a great experience with Jordan Edmisten, loved them. The guys at Halyard thought very highly of them. And yet, we should look at some other ones and really decide what’s gonna be best for this transaction. We wound up going with another group, and it was not an easy decision. The other group we went with was tremendous, and they did a great job. And they operated a little differently than the first group.
Mitchell Reichgut: Making those decisions was one of the toughest things that we had to do together. But we had a great methodology for having, talking these things through, and we all got a broad consensus on the right way to approach it.
John Warrillow: I wanna come back to your advice around finding an M&A professional, I wanna come back to that. But maybe talk a little bit about what precipitated, like was there a triggering event that made you think now is the time to sell Jun Group to another buyer? What precipitated that?
Mitchell Reichgut: You know, for us, it was a constant analysis. And I think one of the things we do well is really look hard at the market and look hard at our products and see where things are. And 2016, 2017, we started to foresee a lot of the consolidation that has happened in the ad tech market specifically. Your listeners may not be too familiar, but everyone knows that Google and Facebook and now Amazon are monsters, and those who pay a little more attention see AT&T and Verizon and others massing to compete. And smaller companies like ours for years had great growth trajectories and lots of promise.
Mitchell Reichgut: We started to see that maybe as a little independent company, we weren’t gonna be able to have that same track record of success, and that it probably was time to partner with somebody larger, that had some more weight in the marketplace. So those discussions, it wasn’t like it was just one day, it was a constant revisiting, I would say week by week, month by month with Halyard and with the partners here, about what our opportunities were and how we could continue to grow.
Mitchell Reichgut: I think complacency will kill you in a business like mine, and we just are constantly looking for the next move and the big change. And sometimes it’s incremental, but other times you really have to move quickly.
John Warrillow: Were you worried about a Google or a Verizon coming up with a competitive product?
Mitchell Reichgut: Not so much, because we compete with those guys all the time, and we offer value that’s just different. And a lot of big Fortune 500 brands invest massive amounts of money with those guys. Those budgets are already gone before we walk into the room. So we’re competitive with them, and in a way not really because we’re swimming in different waters.
Mitchell Reichgut: Our company, there is plenty of room for us to expand, so of course we watch them carefully and have great respect for their products, because I think they’re terrific, but we’re pretty special too, and always felt pretty confident that we could deliver value for our clients, and we would reward them for using us.
John Warrillow: So you hired this M&A firm to sell … Take us through that process. I’m assuming you got multiple offers for the company ultimately?
Mitchell Reichgut: We did. We hired a firm this time around called Petsky Prunier, and we had known them for years, all the way back since before 2015. They were another firm that we had always recognized in our opinion was an elite, top firm, great people. This time, for a whole host of reasons, we thought they were the best fit for us, for this transaction. And they did a tremendous job, again, of educating us and helping us prepare and helping us articulate our value. One of the things they said to us was, “You guys really stand out because you’re so profitable, because you’re so disciplined, a lot of other companies can’t say that.” We had, by 2017 when we got into this, consistently showed growth in a really regular, consistent way. And in a-
John Warrillow: How big are you by 2017 in terms of revenue or number of employees or whatever?
Mitchell Reichgut: Let’s see, 2017, we probably had about 75 people. We’re up over 100 now.
John Warrillow: Wow. Wow. So much bigger indeed. And what … Was it the Halyard Capital that allowed you to grow so quickly? Was that a big piece of the equation?
Mitchell Reichgut: Halyard’s expertise helped us grow quickly. We didn’t need the capital. And I should have said that earlier. It was really kind of an interesting thing, because a lot of companies I think do these transactions because they need the infusion of cash. That was not us. We were profitable, we were fine. Halyard lent us a credibility in the marketplace. Having a really respected institution like that as part of you, we were ready to have different and larger conversations with our clients, and Halyard enabled us to do that. And their expertise and the formation of our board of directors and our board of advisors made a big difference. It was a different company after that. And I think we were … We didn’t even realize how much we needed it until we had it.
John Warrillow: As you evaluated the offers that came in in 2017, 2018, whose decision is it to accept one or the other? Because now you’ve got four … Go ahead.
Mitchell Reichgut: No, go ahead.
John Warrillow: I was just gonna say, you’ve got partners, one of whom has left, but now you’re down to three original founding partners, and then you’ve got Halyard. Assuming there’s some sort of board of directors that makes the call? How were you structured?
Mitchell Reichgut: Well, our board of directors consisted of the partners of Jun Group and the partners of Halyard that had participated in the transaction. There were three of them and three of us. And by now, we’ve worked together for two and a half, three years, we’ve been through some battles, we’ve had our ups, we’ve had our downs, we’ve hard arguments and disagreements and gotten through them together, just like any other group of people. And when this stuff started to come in, we already had a methodology for evaluating it. And we could just speak frankly with one another. It never was emotional, it was always pragmatic.
Mitchell Reichgut: The decisions, in my estimation, when you’re going through something like this, if you take your time and you really think about it, the decisions make themselves. The folks at Advantage Solutions, I hit it off with their representatives and the guy who is now my boss, his name is Gary Cohen. I could just see his vision for this, I could tell that he understood where we were coming from, their needs fit our capabilities so quickly and vice versa. And it was the right thing for a whole host of reasons beyond the numbers.
Mitchell Reichgut: In those meetings, at that point, you can imagine a road show and pitches and multiple meetings and telephone calls and conference calls. You’re really working day and night. Halyard isn’t really a part of those conversations. However, after each of them, they’d say, “How’d it go?” And we’d tell them. And they could tell that we were really feeling comfortable with these guys, and that it was important to us, we would be continuing to land with a group of people that we could thrive with and really help. So that was definitely a big part of everybody’s thinking at that time.
John Warrillow: What was the … As you received offers, again, 2017, 2018, the first time you sold, the first tranche of capital in 2015, it sounded like most of the offers valued you guys in and around the same amount. Was it the same case in the next time, or was there a big delta or difference between the winning bid and others? Was there a huge gap between offers?
Mitchell Reichgut: This time it was a little different. Here we had private equity firms also, and strategics. And the partners were leaning towards selling to a strategic. We just felt like it was time for us to get a big partner in the marketplace, as I indicated earlier, for business reasons we liked that better. I will say that we met some really amazing private equity firms also. And sometimes the offers were structured a little differently, a little more cash here, different perks and benefits to each. But again, the Advantage Solutions, of all the people that we spoke to on either the financial side or the strategic side really stood out to us as the right fit for us, and it became clear as the process went on.
John Warrillow: I understand as part of that you’ve agreed to stay on personally with Advantage Solutions working for Gary?
Mitchell Reichgut: Mm-hmm (affirmative). Yeah. I’m here. And it’s now two partners. Our third partner had been with us for all this time and he felt like, you know what, after this, guys, it’s a good time for me to leave. Completely amicable on all sides, everybody agreed. Advantage knew he was gonna be leaving when we made this transition. And it worked out great for him, and perfect timing for us. So now there’s two of us, and we wanted to be here. So there was definitely a commitment that we made, and my partner Cory and I are here to make sure that Advantage gets what they need out of this great investment that they’ve made, and our employees and everybody that’s involved in June Group … When you’re in my position at this point, you feel responsibility to so many different people. It really is a weighty thing. There’s so many different families and different groups that are depending on you to do your job well and make good decisions. Very different than the early days when it was the Wild West and we could fly by the seat of our pants.
John Warrillow: Do you ever feel any sense of … Maybe … I don’t know the right word. Do you ever think that you personally would have liked the opportunity to fully exit? Do you know what I mean, like go do something totally else, like go surfing or go travel Europe or something. Do you ever feel personally, hey wait a minute, maybe now is my turn to exit?
Mitchell Reichgut: Yeah. That time will come for me. I’m not sure when. Cory’s a little younger than I am. A little bit. Quite young. He’s only 32. And I’ve been in this business a lot longer. And when I say this business, my advertising career is a lot longer than his. So that day will probably come before his does. But for now, I feel like I’m the luckiest guy in the world. I just work with such amazing people, I’m so proud of the team we’ve built here, in my 30 year career I’ve never had the privilege of working with such an amazing group of talent. So I just love it, and it is very hard work. It is frustrating, maddening even at times, but that’s part of it.
Mitchell Reichgut: I’m just focused on doing my thing right now. And like I said, my one word is gratitude. I’m grateful for all the people that work here, I’m grateful for the experience we had with Halyard, I’m grateful for Gary and the folks at Advantage who are all wonderful. And not thinking too much about riding off into the sunset right now.
John Warrillow: When you do, I’d love to do a part two on this interview, for sure. Talk to me a little bit about your personal approach to the money side of things. I guess, you mentioned in the beginning, that you had a wife and kids, and you took a big risk in starting the company. Now that you’ve had these two successful exits, have you bought yourself a trophy? Is there any sort of thing that you’ve indulged in to mark the success?
Mitchell Reichgut: Oh man, I have two kids in college, so I guess that’s the trophy. As I’ve said, I’m a pragmatic guy. My wife and I, we bought this little starter house in 1997, and we figured we’d live there for two or three years, and we’re still there. And we love it. It’s a great house. I think that my personal level of stress is a little lower than those early days. And we’ve earned a little bit of financial security in my family after so many years of hard work. And not just, but you can imagine, this is not easy for my wife, and she was so supportive through so many ups and downs. So it’s nice to be at a different level. But honestly, I get up every day with the same fire in my belly about wanting to get into the office early and get to work because there’s so much to do, and that’s really what drives me.
John Warrillow: Got it. Well, it’s been a successful ride. I will look forward from the sidelines to see how it all shapes out and wish you well. Is there a way that we can reach out? If people wanna say hi, is there … You wanna point them to a website or a social media handle? What’s the best way for folks to say hi?
Mitchell Reichgut: Absolutely. We’re on Twitter for those of you who use that, @jungroup, J-U-N. We are not big Facebook users, but you can certainly find us on LinkedIn, and your listeners can reach out to me. I am not hard to find if you go to our website. Always happy to help other entrepreneurs. If my journey can make anybody else’s journey a little bit easier, I’m delighted to support people. Because I know how hard it is. And I really want to maybe, if we’re getting toward the end here, state that clearly, that this is not a fairy tale. We lived through some terrible times and really struggled, and for all of you out there who dream about getting to this place where I’m at, it’s just a daily grind. And the best advice I ever got from anybody was just don’t stop. As long as you keep going, you’ll get someplace great.
John Warrillow: Well, words to part with. Thank you Mitchell, it was great to meet you, and appreciate you taking the time.
Mitchell Reichgut: Thank you so much for having me on. I enjoyed the conversation.