Sell Your Business for a Premium with Channing Hamlet

In this remastered episode of the DealQuest Podcast, I'm thrilled to sit down with Channing Hamlet, Managing Director at Objective Investment Banking and Valuation. Channing brings over 30 years of experience advising business owners on management issues, transaction execution, and business valuation. His diverse background spans direct management experience, strategy consulting, private equity investing, investment banking, and business appraisal work.

Channing's firm specializes in lower middle market transactions, typically ranging from $10-25 million at the low end up to $100-150 million at the high end, with most deals falling in the $50-75 million range. Throughout our conversation, he shares what truly drives valuation in today's market, how buyer expectations have transformed over the past two decades, and why preparation has become more critical than ever for business owners looking to sell at a premium.

HOW FAMILY DINNERS SHAPED A DEALMAKER

Channing's journey into the world of deals started earlier than most. Growing up, his father was a successful executive who frequently brought out-of-town visitors home for dinner. Those family dinners centered around conversations about business deals, transactions, and business issues. While Channing admits he was an outdoor kid at heart who would have preferred jumping dirt bikes across creeks, those dinner table discussions planted seeds that eventually grew into a career.

His pivotal moment came while working at Legg Mason doing M&A. After working on a transaction for a third-generation family business that had fallen on hard times, the patriarch pulled him aside at the closing dinner. The man shared how much the work had changed his family's life. That moment crystallized something for Channing. Working with smaller family companies where he could truly make a difference felt meaningful. He was hooked.

THE DRAMATIC SHIFT IN BUYER EXPECTATIONS

The M&A landscape has transformed significantly over the past 25 years. Channing points out that in the mid-1990s, private equity firms were paying four to six times EBITDA for companies. It was rare for a middle market company to sell for north of six times EBITDA. Fast forward to today, and we've seen multiples double. Good companies have been selling for 10 to 14 times EBITDA.

But this increase in valuations has come with increased buyer expectations. Back in the 90s, private equity firms would come in, professionalize, and clean up companies. They were willing to deal with accounting issues, personnel problems, and various operational challenges. Today, buyers have very high standards. The level of preparation necessary to successfully sell a company for a premium is vastly different than it was 25 years ago.

WHY CLEAN ACCOUNTING IS NO LONGER OPTIONAL

Many business owners coming to market don't fully understand what it takes to sell their company for a premium. Channing emphasizes that smaller companies often don't have a full management team, don't have audited financial statements, and can get by with cutting some corners in their day-to-day operations. That approach simply doesn't work when you're trying to command top dollar.

Risk factors or what Channing calls "fatal flaws" can either prevent you from selling your company altogether, cause you to retain too much liability, result in large earnouts, or prevent you from getting a premium valuation. More and more, we're seeing business owners recognize they need to invest time and effort in preparation, so that when they show up to an investment bank, there's actually an asset that can be sold at a premium.

THE POWER OF FINANCIAL PROJECTIONS

Here's something that surprises many business owners. Selling a company typically takes nine months, plus or minus. If you started a sale process in January 2023, you would want to sell based on a multiple of your 2023 projected financials, not your 2022 results. This means having well-thought-out financial projections that buyers can believe in.

The number of companies Channing works with that either don't do budgets, don't take the budgeting process seriously, or don't see a need for it is remarkable. When companies really understand the drivers of their business and can articulate how their activities translate into specific financial outcomes, selling based on projected results becomes dramatically easier. A last-minute budget thrown together because an investment banker asked for it simply won't stand up to buyer scrutiny.

UNDERSTANDING WHAT DRIVES VALUE IN YOUR SECTOR

Channing shares a powerful contrast. In the 1990s, there was a roll-up happening in the printing industry. His firm sold a commercial printing business for seven and a half times EBITDA. They had six or seven offers from companies doing consolidations and ran a really competitive auction. Fifteen years later, he got hired by another printing company that was arguably better in many ways. Better company, better client base, better technology. But the buyers simply weren't there to support it.

This gentleman built a really nice business, but he didn't spend time understanding what drives value in his industry. What was worth a premium 15 years earlier couldn't be sold at a premium now. Every industry has different value drivers, and understanding them requires lifting your head up to see what's happening around you, who's buying, and what you need to build.

THE PREDICTABILITY PREMIUM

Beyond sector-specific factors, Channing identifies predictability as a major value driver. Whether it's recurring revenue, more predictable revenue streams, or systematizing the business so that specific inputs reliably produce specific outputs, predictability commands a premium. Buyers want to reduce uncertainty, and anything you can do to demonstrate that your business will continue performing reduces their risk.

This concept echoes insights from my conversation with Pete Mohr about building exit-ready businesses. The companies that command the best multiples have baked predictability into their operating model, not just their financials.

ARTICULATING YOUR SPECIAL SAUCE

Many business owners come to investment bankers and describe themselves as simply making widgets. But as Channing points out, nobody wants to buy you because you're a widget manufacturer. They want to buy you because you're the best widget manufacturer for a particular purpose and you're better than the competition for specific reasons.

The more clear business owners are about their differentiation and unique value proposition, and the more they build that into their strategy, the more successful their business will be and the higher the premium they'll command. These aren't things you can wake up on Monday and implement by Wednesday. They take time, thought, and effort.

CREATIVE DEAL STRUCTURES IN UNCERTAIN MARKETS

Channing shares a fascinating case study from a transaction his firm closed in November. The buyer was having trouble arranging bank financing. Instead of letting the deal die, they offered seller financing. The transaction closed without any third-party financing. The seller put a third of the money back in as a seller note at a 10% interest rate with escalators.

The seller's perspective was illuminating. The economy was volatile, he didn't know where to invest the money anyway, and earning 10% on a company he would continue to run while being senior to everybody else made complete sense. As cost of capital rises and traditional financing becomes more challenging, expect to see more creative structures like this.

THE THREE LEGS OF VALUATION PRACTICE

Objective's valuation practice has three distinct applications. First, valuations for financial reporting, where companies with audited financial statements need to value and revalue different assets and liabilities for their balance sheets. Second, tax compliance work including stock option valuations, estate and gift tax planning, and similar needs. Third, advisory valuations for scenarios like partner buyouts, raising money, preparing to sell, or simply making decisions about timing and strategy.

The advisory work Channing finds most interesting involves helping business owners understand not just what their company is worth today, but what levers they can pull to improve that value. What happens if they make acquisitions? What happens if they grow faster? What do they need to believe for one path to be better than another?

VALUATION AS STRATEGIC DECISION SUPPORT

Channing shares an example of a company in the retail technology space with stable cash flow. One investor group wanted to raise money and invest in next-generation technology. Another group wanted to sell and let someone else take that risk. There was heated debate among the investors.

His team modeled different scenarios. For the raise-money path, these are the three or four things you have to absolutely believe for that to be the better decision. For the sell-now path, here are the different beliefs required for that to be right. The ultimate decision wasn't what sounded right on the surface. Getting into the numbers and stress-testing different outcomes revealed insights that changed minds.

FREEDOM AND ENTREPRENEURSHIP

When I asked Channing about freedom, my highest ideal, his answer resonated deeply. He started his entrepreneurial journey as a founder about 20 years ago and has never looked back. The freedom to figure things out on his own, to make colossal mistakes sometimes and have things work out other times, with no one to blame but the guy in the mirror every morning, that's what entrepreneurship means to him.

He also shared a cartoon from Strategic Coach that sits on his desk showing someone with a closed door and a huge stack of papers. The note on the door says "Leave me alone. I have a week of work to get done in the next four hours because I have the time management skills of a carrot." The freedom we have is ultimately about choosing what we commit to and what we don't commit to.

Listen to the full episode of DealQuest Podcast Episode 236 with Channing Hamlet: [Available on all major podcast platforms]

FOR MORE ON THIS EPISODE: https://www.coreykupfer.com/blog/channinghamlet

FOR MORE ON CHANNING HAMLET
 https://objectivecp.com

FOR MORE ON COREY KUPFER
https://www.linkedin.com/in/coreykupfer/
https://www.coreykupfer.com/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

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