Key Takeaways
- Deep sector specialization can be a durable competitive advantage. Michael spent 13 years building his firm around a tight set of end markets — credit and collections, healthcare revenue cycle management, and contact center BPO — so his team could operate at a "400 to 500 level" of industry fluency rather than a generalist's 100-level view.
- Private equity is beginning to roll up law firms the way it once rolled up dental and accounting practices. New "LSO" structures are opening the door for PE, family offices, and high-net-worth individuals to invest in law firms — starting with consumer-facing and small-business practices like debt collection, not white-shoe firms — with automation and AI positioned to expand margins over time.
- Relationships close deals; spreadsheets don't. Whether it's convincing a founder to see the wealth-creating opportunity in front of them or simply getting hired over a 2,000-person global bank, Michael argues the deciding factor is almost always the strength of the relationship, not the numbers on the page.
- Trust is the single biggest reason deals succeed or fail. Along with mismatched expectations and financial performance, broken trust between buyer and seller is, in Michael's experience, the hardest thing for a deal to recover from — and the one he'd rank above the other two.
- Data security has become table stakes, not a differentiator. Handling sensitive company information in data rooms every day means compliance and cybersecurity readiness — MFA, KYC, documented processes — are now baseline expectations from clients, not selling points.
- Know your own strengths early. Michael realized early in his career that he was a relationship-builder and closer, not the strongest financial modeler, and built his path — including going independent — around that self-knowledge rather than trying to compensate for his weaknesses.
- Honesty in the pitch pays off later. Overselling valuation multiples or marketing timelines might win a mandate, but it tends to blow up diligence and erode trust once real numbers surface. Michael's approach is to stay factual from the first conversation, even when it's a harder sell.
Full Transcript
Abby: Hey, Michael, welcome to our podcast on closers, the secret of independent successful deal makers. Thanks so much for coming on. I'm really excited to talk to you and hear how you've been doing it all these years. Before we kick off, can you give us a little bit of a bio about yourself?
Michael Lamm: Sure, Abby, it's great to be here. Love doing these types of podcasts and to kind of offer different insights into what it's like day to day in running a firm like ours and the trials, the tribulations, the good and the bad, all that stuff. So thanks again to you and Finalis for setting it up.
Abby: Thanks for coming on. So before we begin, I was looking at your background and there were a couple of things that seemed pretty interesting to me. One is that when you were in college, you actually co-founded a nonprofit trade association, the US Israel Business Exchange, which is pretty amazing. So I just wanted to kick off with understanding how did that happen, and what was that experience like?
Michael Lamm: Yeah, it was pretty unique for me too. When you're in college, I was in Washington DC, and there's so many opportunities. And one thing that my parents really pushed me when I went to college in DC — they're like, go get work experience, get an internship, do something, don't just sit on campus. Luckily DC, as you know, Abby, because you went to school down there too, there's the metro, it's kind of easy to get around, and I started talking and networking with people. That was kind of the name of the game, right? And I stumbled across a guy who had actually been ten years older than me who said, I need an intern to help me build out this initiative we're doing at the Embassy of Israel. And I said, I don't really know anything about that, but I'm more than happy to learn, work, and figure it out.
One thing led to another and I got really into it, because when I was at school I studied international studies, so I had an affinity to South America — I lived in Argentina — and I also had a real affinity to Israel because I'm Jewish. So it worked well when this individual approached me about the opportunity. And I just started learning more about technology, M&A, venture capital, and I got hooked — hooked with the concept of helping a business owner figure out what to do with their company. One thing I was really good at at that time was talking and communicating to these business owners about their tech and their businesses. And it really excited me hearing about the new opportunities they were bringing out of Israel to sell into the US government and other funds that were interested in investing in the business.
Abby: That's cool. I'm curious too, with that background, how do you feel like that international start to things informed your take on strategic transactions?
Michael Lamm: Yeah, for me it was — fast forward to my life today — you see how important communication is to why deals happen and why they don't. One thing I learned with Israeli companies at that time was they were amazing engineers, physicists, scientists, amazing at figuring things out. They were god-awful at sales and marketing. It's just not their shtick. And in order to get somebody to invest into a business, I don't care what it is, you've got to be able to explain it, understand the hook of why somebody would be interested, and be able to articulate it. I learned that a lot because when you're also dealing with language barriers, that makes things challenging too — you're hearing something in one language and then you've got to convert it into another. That was an interesting dynamic, because the transactions I was in at that time were always cross-border. You always had to navigate that side of it too.
Abby: And one thing I've noticed over the years is having that grounding or perspective is actually honestly a little unusual in the US, and I think it can give you a real advantage. Because I've seen so many people go abroad and say "they just don't understand this or that," when it's really us who often don't understand how differently other geographies and cultures and business models operate.
Michael Lamm: I think for being an intermediary — if you look at what we do for a living — you have to be able to translate. You have to be able to explain to someone else what someone else may be thinking, or an idea or an investment opportunity, to get somebody willing to listen or engage with the idea. That's where I think I learned the skill, because a lot of times in investment banking you can't go on autopilot. You can't just sit and say I'm going to let this transaction get figured out by itself. You have to be engaged in it from start to end.
Abby: What are those listening or translation skills that you find get you to move a deal forward versus how other people may approach it?
Michael Lamm: I kind of wish, Abby, that when I was in college I would have gotten a degree in psychology. Because when you're dealing with a business owner you have to be willing to listen, listen, listen, listen, and understand what their pain points are, what their issues are. So early in my career I spent a lot of time listening and hearing what people wanted, and how they wanted it, and sometimes that they were crazy about what they wanted valuation-wise. But you listen to understand how they got there. I think that's something that becomes very important in translating whether a deal can work or whether it can't. You've got to hear both sides and understand what they want.
Abby: And speaking of valuations, I was so curious — you recently ran a workshop I saw on law firm valuations. As a non-practicing lawyer whose closest friends are still in the law, and in an area very close to compliance, this is near and dear to my heart. Obviously the law is going through massive amounts of disruption, Harvey's in the news all the time, but there's a real reckoning there. So how do you value law firms? It can't have been easy beforehand anyway, but now?
Michael Lamm: Yeah, Abby, it's a whole new frontier. I come from a family of lawyers, so I appreciate the trials and tribulations lawyers face in terms of being able to exit their businesses at some point. This is a new frontier for legal, and we're at the very early innings of it. In one of the end markets we're in — specifically debt collection law firms — it's basically a law firm, but it's got a machine behind it, with call center operations, IT, and client services. It's a business, it's a law firm, but it's truly a business. So there are new models coming out, what they call LSOs, to help figure out how to transact with them. Setting up these LSOs gives an option for private equity, family offices, and high-net-worth individuals to invest in these firms, which they really weren't able to do before. They're taking that playbook from dental offices, accountants, and consultancies and applying similar logic to what we're seeing in law firms. Now, we're not seeing people move into buying white-shoe, white-glove law firms — not yet. But maybe that's going to change too. These are firms dealing more directly with consumers and small businesses, where opportunities are being uncovered by private equity. We're really jazzed about it — I just did a talk in Florida all about this with a couple of other law firms and compliance people, on how to set them up and how they're valued.
Abby: Interesting. It's such a fascinating area. Do you think there's going to be a ton of roll-ups in the space, in the lower mid-market, and then a focus on AI and modernization? Or what's the play?
Michael Lamm: You nailed it — the play is that investors are going to come in and try to automate them, because law firms tend to be very manual, very manual workflows. So the idea is that new investors want to take a business generating a 10 or 15% EBITDA margin and turn it into 20 to 30% over time, and then make acquisitions on top of that. It's an exciting time. We're also talking to a lot of AI-related legal experts who want to come in with their tech to help automate them faster. That's going to take time though — we're again early innings. But the law firms are pretty jazzed by it, because for the first time they're seeing liquidity options versus just merging in with another lawyer or selling the business to existing lawyers. They have another option potentially. So I think you're going to see a lot more transaction activity in the Finalis network, most likely, from firms like ours and others doing deals in this segment.
Abby: No, that's great to hear. And I'd say the other thing that interests me — and we'll see whether it really arrives — is the opportunity itself. We were students in DC at the same time, and I remember in law school so many of us were really excited and idealistic and wanted to do so many more things than we ended up being able to do. But AI, I feel, has really unlocked so many marketplaces that haven't been accessible to lawyers before. I don't know what your thoughts are on that, but I'm excited about the opportunity to create new business models that serve more of the population.
Michael Lamm: We're viewing it the same way, Abby. I think the challenge is AI is also unfolding — there's a lot of noise out there. How quickly is it really going to change the game when it comes to legal? I think it's going to take time, because at the end of the day we're people, and people aren't necessarily disappearing off the face of the earth, at least not today. We're not all going to turn into robots. So we're going to leverage AI as a tool — it's going to be a heck of a tool. I want to use it every which way in my business and watch my clients use it too, but do it in the right way. I think a lot of people feel the same way. There's a big movement toward it, and it's going to affect legal just like it affects other industries. I think the people who really think through how to use it are going to be the ones who benefit from it long term.
Abby: Yeah, I agree. This probably shows how M&A-focused I am, but I keep thinking about it the same way as 2021, when there were so many deals in market — M&A was crazy, no one had ever seen so much volume or value before, coming off of COVID. And then in 2022 the other shoe drops and it becomes clear people overextended, and a lot of bad deals were made that people are still struggling from, because now they can't exit overvalued companies they bought back then.
Michael Lamm: Yeah, we also had low interest rates too, Abby. The market has changed pretty significantly from then till now. People are hoping the AI train is going to bail them out of those investments, and I think that's going to be a hard way to exit some of these deals. You can't just put some AI in it or change the company name to .ai and everything's going to be great — it isn't that simple. But I do think we're going to see a lot of market shifts, opportunity coming out of this bubble we're in a bit right now. I kind of relate it back to the dot-com and the dot-bomb era we lived through. We're going to see something like that occur again — who knows.
Abby: Debt collections cannot be a bad place to be right now, I would imagine. And that gets me to my next point — tell me about your industry. Up until recently, sector specialization and really understanding your market was so critical to becoming successful for bankers. So I'm curious to hear about your industry — what makes it special to you, and how do you see AI impacting it overall?
Michael Lamm: So, quick story — 25 years ago when I got into investment banking, I joined a firm that was very specialized in the credit and collections ecosystem. But a lot of my initial deals were ones outside of the industry, other industries like IT that had nothing to do with that. After spending ten years at that M&A firm, I started to realize specialization matters. There are a lot of amazing generalist folks in the Finalis network — I respect them, they do a phenomenal job — that just wasn't me. I wanted to dig in to the point where I knew every aspect of an industry at the trade association level, at the market level. I wanted people to come to me and to people in my organization for not a 100-level course about these industries, but a four to 500-level course, where we could really talk shop. That's what we developed over the past 13 years, and we've done a really decent job of creating these little ecosystems. Credit and collections is an ecosystem for us. We also do work in healthcare revenue cycle management and the contact center BPO industry — both tech and services across these areas. The specialization has worked well for us. Now, it doesn't always work — I can give you countless examples where it doesn't — but net-net, it gives us an advantage out in the market day in, day out, as a thought leader in these industries, versus being a person or team that goes from industry to industry to industry.
Abby: And you mentioned it yourself — I've noticed there are a lot more generalists out there lately, at least in the Finalis network, which is super interesting to me. Like you, I've been in this industry for 20-plus years, and specialization was always sort of a critical point, but there's this move toward generalization for bankers starting their own firms or moving forward. What would you advise them — how do you decide whether generalization or specialization is the right move, and if you are going to be a specialist, how do you own that?
Michael Lamm: A lot of the people I coach and mentor — whether in my organization or outside, friends, people I've known for years — develop skill sets transactionally in investment banking, learning our own workflows of taking a company to market and the whole process that goes into that. From the beginning of my career, I always wanted to control it at some level. I didn't want to have to recreate the wheel over and over again. I liked the idea, because our work is already such a volatile, up-and-down roller coaster of M&A, of not having to start over again with the buyer pool, the investor pool, and the companies we're marketing to. But those in the generalist world grow up with everything being brand new — there's an advantage to that too, because they see so many different types of companies, people, and processes that work or don't work in certain industries, and they can apply that same logic to new deals. Some people are really good at going from market to market. I personally wasn't. But I think others can do that seamlessly and be excited by it. I wanted a different mechanical workflow to change and modify versus starting from scratch each time. But it really comes down to personality, Abby, more than just deciding "here's what I'm going to be" and hoping for the best.
Abby: That's so interesting — it sparked a memory for me, from when I was running the journalist team at Mergermarket. It was very similar: some journalists would gravitate to being like, "oil and gas is my sector and I know everything about it," and others were far happier moving around as generalists. It does feel like a personality thing. But I'd imagine it's still a critical question to ask yourself when you're going independent, from a strategic perspective.
Michael Lamm: Yeah — between my partner and I, when we left our prior firm, we knew we wanted to broaden, and we've diversified, added technology and other areas of tech-enabled services. That was all by design. We wanted to be less focused on just one market, because that's the other side of being a specialist, Abby — what happens if the industry blows up for some reason? Collections is one of the oldest industries in the world, so we feel pretty comfortable it's not going anywhere, but it's changing a lot with technology and AI, and we're moving alongside it and watching it all change.
Abby: The other thing that's changing, besides AI, that I'm really curious about is Philly, since we were talking a lot about cities and how they've changed over the years. Philly's always been sort of the city in between New York and DC. Unlike a lot of those cities that have been known for certain sectors — New York for financial services, DC for defense and so on — Philly has always been in this in-between space. So I'm curious how you've seen that market change and grow, and if someone was thinking about Philly, what would you say to them?
Michael Lamm: Here's what people think of Philly, and then when you tie it into investment banking it gets even more interesting. Philly is a blue-collar town — manufacturing, distribution, machinery-type work, food and distribution. That kind of business has grown up here and been here forever. The personality of the city is gritty too — it's got its own personality that other cities don't have, whether it comes to sports or just lifestyle. You deal with more of an entrepreneurial, hard-charging, independent type of individual than you see in some other cities, and as a result you tend to see different types of business models come out of here. I'm on the board of ACG here in Philadelphia, and it creates different types of investment bankers and private equity groups who bring that same personality to the investments and transactions they do. It's definitely not New York, it's definitely not DC, but it's got its own uniqueness, which I love about it. That's why I came back — after school I was living down there working for over ten years, and it just always drew me back.
Abby: I love that, because one of the intangibles about M&A and deal-making is the different cultures involved — whether it's industry culture or city culture — and understanding those and where you fit is critical.
Michael Lamm: I also wish, Abby, I could find more clients in our sectors in our region, because I travel a tremendous amount, across the country and internationally. So when I get a client in the Philadelphia area, I jump for joy, because it means I don't have to get on an airplane — I can get in my car and go visit them. It's a huge win. I wish I could do more locally, but many of the companies just aren't here anymore.
Abby: Makes sense. We talked briefly about AI, but before we get to the more nitty-gritty stuff — what's one thing you like using AI for, and one thing you don't?
Michael Lamm: I love using it for marketing — that ties right into your world. It makes producing copy faster, and it helps with the day-to-day of the business generally. A lot of the Finalis network lives this too — you've got to be marketing every single day, whether it's going to conferences, trade shows, meeting people, telling people about the information you're gathering and why it matters to them. I think there's tremendous opportunity in that workflow specifically, because I'm the relationship guy — I'm out on the road a lot — so I value AI significantly for that.
Abby: And what's one thing you don't think people should be using it for?
Michael Lamm: I think there need to be checks and balances with AI. Leveraging it for books, teasers, buyer lists — all of that is great, but it needs a human over top of it. No one should be sending a book to a client without checking it first. There needs to be more oversight, and we're trying to do that on our end too. That's the part that scares me most — it can be leveraged in pretty much anything, but how good it is depends on how good you prompt it. You need a human making sure it's doing what you want it to do.
Abby: That makes sense to me — that's my big fear too, that people forget AI makes mistakes and makes things up. I get it, because it comes off so polished, but there are still a lot of mistakes. Alright — running a successful independent advisory: as you know, with Finalis we've seen so many more people go independent over the last five years, but you actually went independent and set up your own firm 13 years ago. So I'm curious what your journey's been — first of all, what prompted you to strike out on your own? That's a big deal, especially in Philly.
Michael Lamm: Yeah, I'll tell you, there's a couple of things. For me, there are different people in investment banking — career analysts who are amazing analytically. I wasn't. I was very good, but I was a hybrid — very good at relationship building, marketing, bringing in clients, explaining the process and workflow, but I just wasn't the best book writer. I realized that very early in investment banking, where my strengths and weaknesses were. I'd urge people listening to this podcast — if you haven't figured out your strengths and weaknesses, stop, sit down, and figure that out, because it's going to change your perspective on your life in investment banking once you do. For me, that was really important to figure out early. Once I knew that was my strength, I ultimately wanted to own my own firm. I didn't want to go get a job on Wall Street or join a larger investment bank — I wanted to figure it out on my own and independently build something with a great culture, a great team, that did great things for its clients. That was the trajectory I started figuring out about five or six years into M&A — that was a passion I had.
Abby: So what were those early years like for you, and what do you wish you'd known then that you know now?
Michael Lamm: Starting a business is really, really hard. The first year is even harder. There isn't a book that says here's how to make it less painful — you just have to go through it. I had to go through it when I had, I think, a one-year-old at the time — now I have three children. It was the hardest year of my life, dealing with everything from "how am I going to get credibility?" to "how are people going to want to hire me, want to work with me, want to use your services when you're so new to the world?" A lot of sleepless nights, too, when you start landing your first client and realize how critical that client is to getting the credibility you need — it becomes an obsession, because you're going to make it happen one way or another, since you've got a family to feed and a business to generate. That was the most challenging part of making it work for me.
Abby: I can't even imagine what that did to your sleep on top of everything else, with a baby.
Michael Lamm: I drank a lot of coffee. Coffee was my best friend during that period of time.
Abby: What's the value to clients now that you've proven this out, going independent versus going with one of the more traditional institutional banks? What's your pitch, or what do you see clients gravitating toward?
Michael Lamm: I think they gravitate to our knowledge. What we're able to bring to the table when we sit down with a prospect, whether buy-side or sell-side — we're more sell-side oriented — is pretty incredible, because the owner has immediate comfort knowing we know their industry and the dynamics of what's happening in it, and who's interested in investing or buying into it. That knowledge base we've developed is bar none. It gets me excited every time, knowing how capable we are when we get on the phone with somebody and what we can bring to the table. That's a big differentiator for us.
Abby: What else do clients ask about, or what are their typical concerns, and how do you get around them when you're up against a larger competitor?
Michael Lamm: We're competing against the largest investment banks, not just here in the US but in the world. When we get brought in to pitch against an investment bank with 2,000 people globally, I want to win it. I'm a competitor — I play basketball, I want to win where we can. It's not just about winning, it's about making sure we're putting ourselves in the best position. I think the one thing that helps us is our specialization, but it can also hurt us, because sometimes owners want a generalist view — they want somebody who doesn't know every Tom, Dick, and Harry in the market, who can bring something different or unique to the table from other industries they've bought and sold into. If that's what the owner wants, we can't sell that — we're selling our specialty, our knowledge, our efficiency. Sometimes that works out really well, and sometimes they don't want to buy it.
Abby: That's interesting. The theme I keep hearing from you is knowing yourself and your strengths and leaning into those, but not beating yourself up over weaknesses or overcompensating for them.
Michael Lamm: I did enough of that early in my career. You lose — everyone loses at something. But when you lose and you can learn from it... I know people say it and it sounds cliché, but seriously, at least I try, when we lose, for whatever reason, we dissect it: could we have done something differently? What could we have said differently? Did we not model this correctly? It's never fun to lose, but if you just move on from it without dissecting it, it's even worse. I tell my team that when we lose, we're going to learn from why we lost and figure out if we could have done anything differently to change the outcome.
Abby: Where do you see other independent advisors failing? There's a huge network, not just at Finalis but more and more every month. Where do you see them falling behind or making mistakes?
Michael Lamm: When I talk to other advisors, in the network and outside of it, I tend to hear about fee rates — no retainers, no this, no that — versus selling value-add. Cliché, but real. If you don't have the relationship with the business owner, it's going to be really difficult for them to view you as anything other than a price in a pitch book. If they're seeing real value in what you're bringing to the table, you've got to figure out how to better harness that. To beat the competitors we're facing every day — whether independent, generalist, or specialty advisors — the relationship matters. And you don't develop a relationship over Zoom. As much as I'd love to see it happen, you don't. You have to go out to lunch, go to dinner, go on their boat, get to know them. A lot of people view our world as very transaction-oriented, and it absolutely is, but there's a relationship behind every transaction that happens. If you don't have the relationship, your probability of getting hired goes down dramatically.
Abby: And when you do get the mandate, where do you see firms falling down or not being able to close deals?
Michael Lamm: With other firms, where they fail is they've oversold it — they've said the value is going to be X, these crazy multiples, or they've over-promised on how broad their marketing process will go, or how they're going to handle the book writing. My mantra, to our detriment sometimes, is that we don't oversell. We try to keep it as factual as humanly possible, to tell clients what to expect the day after they sign a contract. I do feel people in our industry tend to over-embellish — at some level it's sales, we're out there trying to get clients, so there's part of that. But when it comes to the actual workflow and the process, I think we all need to take a step back sometimes and ask, are we being real about this? I find that's a dynamic we see a lot.
Abby: And it backfires too, right? Because so many times when you're selling a business, the founders or owners are like, "well, I'm not going to sell for this amount, you promised me the sky." So then you don't close the deal, and everyone's time gets wasted.
Michael Lamm: Yeah, but that's where the specialty areas come into play for us, because we don't have to come up with a hook, line, and sinker and say "we think you're going to trade for X and Y" and hope for the best. We have real thought, we have comps and other things we bring to bear. That's where it becomes helpful, and where it's harder for generalists, because they're only gathering information from a pitch book or CapIQ to come up with modeling that ends up with an overly inflated multiple range. Now, sometimes we're wrong too — we undervalue certain assets. But I think when you're upfront and candid with somebody about what you think the valuation ranges are — not only disclaiming it, but having that conversation, saying here's what the market is telling us, but we're unsure here, here, and here because we haven't answered these questions yet — the more candid you can be with the business owner upfront during the pitch, the more success you'll have once you get to the point of having offers on the table.
Abby: Speaking of the business owner — say it wasn't you, but a different industry, a different place, like a best friend from college. What are the three things you'd say they should be asking about their banker when they're doing due diligence?
Michael Lamm: Number one, how many transactions are they currently working on? Am I going to get brought into this transaction group and then find out I'm last in line to go to market? What does the team look like? Because when I go in and pitch, I'm going in with a team — they're not just hiring me, they're hiring our firm and everything it brings to bear. Who's actually on the deal team? What does the associate look like, the VP, the analyst — you've got to get to know them, because they're in the trenches doing the books, the buyer list, and other things. Making sure you have a good handle on the team is number two. And number three is the overall workflow — what's the timeline you're working under, and how realistic is that? Sometimes that's an area of negotiation, because everyone wants to be in market yesterday, but maybe that's not the best situation given where your financials are — maybe you need to wait six or nine months. Having those honest conversations with the banker pitching you is really critical to figuring out if they're the right group for the job.
Abby: It's so interesting to me too, because when I was analyzing deal trends a couple of years ago, I saw all these holds happening on a regular basis. We looked into it and realized it was resourcing — something you never hear anyone admit, that they can't take a deal because of resources. But so many deals, at a massive scale, went on hold because bankers had to kick the can down the road. I saw that impact at a high level, and people don't ask about it or think about it.
Michael Lamm: It's a real issue. They don't ask, or they have — I've gotten a recent question, "tell me about a deal that died, what happened, why did it die?" In our industry everyone's got big egos and wants to talk about all the deals they've closed, and I'm all for that, but if you're really being honest with yourself, you're also going to have deals that died, and there are reasons why. It goes back to that learning exercise — you've got to dissect it. People care about that, and I always tell people to ask those types of questions too.
Abby: I actually have that on my question list, but do you have more time to keep going, Michael? I know we're over — I tend to go long when I'm interested. So — this has been very interesting to me as someone who's been in M&A but not involved in compliance until recently, so I had no idea how compliance worked behind the scenes all these years. I'm just learning. One question I have — what questions should clients be asking about compliance?
Michael Lamm: I do, I'm good. Think about all the things Finalis does — every day we're uploading documents, making sure certain agreements are signed, getting NDAs in place. Every day we're in a heavily regulated industry, and there are plenty of people out there who don't have licenses like we do and other Finalis members. It's a scary proposition. The thing that probably keeps me up at night more than anything else is data security, because we're taking companies' information, loading it into data rooms, and we're in the trenches dealing with information every single day. If I'm a business owner thinking about hiring you or me to help with a transaction, they better have good data and compliance security in place to manage information flow, because it's becoming table stakes. If you don't have that today, it's not just a cost of doing business — it's beyond that. We spend time with our prospects and clients telling them what we have in place with MFA and everything else. It's beyond important.
Abby: It's so interesting. I was trying to think of an analogy — and you'll get this since you live in Philly and I have to go to New Jersey a lot for friend things, which is terrifying for me driving there — and I thought, compliance is like driving in New Jersey. And then I thought, what is doing deals without compliance? My thought was it's like driving in New Jersey without driver's insurance, a seatbelt, and a GPS. Curious what you think about that.
Michael Lamm: I think it's a great analogy. I think there's a reason why Finalis has been successful, and firms like ours have too — because we take it seriously. It's not window dressing. Every single day we're dealing with compliance dynamics, email archiving, texting — everything has to be above board. I do find that the firms that don't take that seriously expose themselves to real risk. I've been doing this for 13 years at my own firm, and prior to that, and this is not something you screw around with. We take it very seriously, and I think a lot of people need to keep that in front of them when they're thinking about the analogy you described, Abby. It's real, and it's not just something people say — you've got to put your money where your mouth is and actually do what you're supposed to do.
Abby: Yeah, and it's not just a checkmark for FINRA. There's tons of M&A litigation out there. Someone was telling me the other day that if your deal needs to be audited and can't be, the client can choose not to pay you — there's a whole list of very real-world impacts.
Michael Lamm: Yeah, every day. That's why you spend the dollars and partner with companies that give you the confidence you're doing it the right way. That's what we try to do — take it seriously, make it a priority, and tell our clients that too.
Abby: So moving into the closing section — as we all know, many, many deals never get closed. I always think about it as the salmon migration, with Morgan Freeman narrating — salmon come from the ocean and jump up the stream they came from, and most of them die, and only a very few make it to the nesting grounds. There are so many ways deals can die or not make it, and you have a really great track record of closing deals, which is the most important thing at the end of the day — getting things actually done. So tell me about the first deal you ever closed. What was that like?
Michael Lamm: It was a roller-coaster ride, because I got handed a deal from the managing partner of my prior firm, who said "figure this out." It was in the healthcare revenue cycle management space, a billing company. I was so new — there were so many things I didn't know. Most importantly, I didn't value the relationship as much as I should have, but I was still able to get it closed because they trusted me — they knew I was giving them as much insight and transparency as anybody could in negotiating the transaction for them. It was a deal that was supposed to take six months and took close to a year, a lot of it because they lacked financial controls — they were a complete and utter disaster when it came to financials. That was the one period of my life where I realized I was a good analyst, but I was never going to be a great one, because of the level of detail we had to get into. I got through it, but the hardest part was that the company's financial performance dropped out during diligence, and I had to figure out how to renegotiate the transaction to a point where I could get my client comfortable with the buyer, who had changed gears on them — they'd lost about 20% of their revenue. So we had to rework the deal, add an earn-out component. Everybody was frustrated and pissed off at each other, and I had to navigate through that. I remember our client saying, "Michael, how are you so calm and relaxed about this? You're going to lose a huge fee if we don't figure this out." I said, we're either going to figure this out or we're not, and it's going to be what it's going to be. I was able to keep calm about it versus getting truly emotional, and I think that's what helped us get it over the finish line. So that was my first deal.
Abby: And I heard you say the clients trusted you in the end, but that one of the mistakes was not spending enough time with them. Tell me a little about that.
Michael Lamm: Because I was brought in at an associate or analyst level, I didn't have the relationship that the executive above me had. But I was the bearer of bad news — I was the guy who had to tell them, "you're not getting the number you want, your numbers aren't what you thought they'd be." It was hard to be that person without having built that relationship first. Looking back, I wish I'd been the guy at the pitch, at the meeting, at the restaurant, explaining the process from the start — I probably could have offered more, and there would have been a level of comfort, versus getting thrown into it after the deal was already signed up.
Abby: So then how did you earn their trust? That has to be really hard.
Michael Lamm: By being there every single day, answering their questions. When they called at nine o'clock at night, I answered the phone. When they sent an email at one in the morning, I answered the email. They knew they could count on me. Work ethic is beyond critical — everyone talks about the intensity of investment banking, and it is intense, but there are certain people who are really good at volatility and can work through that intensity, and others who aren't. I learned along the way that I was pretty good at dealing with the up-and-down roller coaster that happens every single day.
Abby: Going back to clients — I know this is a huge pain point for everybody in the industry. In your experience, what do clients most often misunderstand about closing a deal, or getting to that close?
Michael Lamm: I think they believe they've done the heavy lifting once they've written the book and gone to market and found interested parties. But then there's diligence, and diligence is insanely intensive — it's gotten even more intensive, especially in our heavily regulated industries. When they get to that stage, they're completely not expecting how intense it gets. We try to do the best job we can telling them all about the diligence process, all the data, all the information, and it's still, after 25 years of doing this, a big shock to them when they see how intense it is over a 60-day period.
Abby: What I always think of is it must be like having to suddenly do your taxes times ten, based on what I've seen, which is horrifying. No wonder they're often like, "you know what, I'll retire to Florida next year."
Michael Lamm: Yeah, but once you get through it and see the outcome — the liquidity and everything else — it's like you went through battle, got your war wounds, and figured it out.
Abby: Best feeling in the world. What are the three biggest reasons deals fail in your experience?
Michael Lamm: Probably one of the biggest is wrong expectations being set — valuation changes, whatever. I'd also say trust is another one, because in a lot of cases, as soon as trust is gone — buyer did something, seller did something, and you just don't trust them — it's so hard to bounce back from that. It takes time to recover when there's broken trust. And the third is financial performance. I'd probably put trust as number one, but anyway.
Abby: That makes sense. I think too, when you're on the buy side, it's often a lot more transactional, but when you're selling something, it's your business, your passion, your baby — you're sensitive, there's a lot at stake.
Michael Lamm: You are. But that's where our role becomes more critical, because we're the ones taking that criticism versus the business owner directly — about their financial performance, or why did Sally leave, or what happened with this, or their IT department. Whatever it is, I want the buyer to share that frustration with me as much as humanly possible, so we can figure out a way to communicate it to our client too.
Abby: You told me about a deal that was challenging that you saved already — tell me about a deal that failed, that you've done a lessons-learned on, since you said you're happy to share. I'm always curious to hear those stories.
Michael Lamm: Usually when our deals fail, it's because there's an issue — not always, but usually around financial performance, something significantly changes and there's nothing we can do, no financial modeling wizardry to magically make things better. The numbers or the EBITDA we thought was there isn't there anymore, and we've got to say time-out, put it on hold, it's not going to work. A lot of our clients are service-based businesses with large client concentration, and that's usually the dynamic — a large client changes things mid-process and we have to pause.
Abby: Putting your valuation and compliance hats on, since I know you have both in addition to banking — post-close lawsuits over valuation and compliance are huge, right, they're all over the place. I think in the lower mid-market they've increased in recent years — I don't want to say correlation-causation, but it's interesting it ties in with the new FINRA rule. How do you de-risk deals from that?
Michael Lamm: Nothing in M&A is going to be completely perfect and easy — there are going to be issues, so you've got to go into it with eyes wide open. Reps and warranty insurance, other coverages to help mitigate those issues, have become a big discussion in lower middle-market transactions. It wasn't so prominent 15 years ago — getting reps and warranty insurance coverage on smaller transactions, five or ten million of EBITDA, was unlikely. Now it's something people are talking about much more and building into transactions to deal with these dynamics, versus it ending up in the courts. It's not going to solve everybody's problem, but it's become a way to help mitigate it at some level.
Abby: And what about the compliance aspects? There are a number of lawsuits after the fact about that too — where do you see that happening? Is it just someone looking to claim something, saying "you didn't run this through compliance, so I need my money back"?
Michael Lamm: In our industries, we've got to deal with consumer-related litigation against these companies — they're sued with nuisance claims every day of the week, bucketed small, medium, and large. If a claim is occurring or there's an issue happening in a transaction, it can get pushed aside and then magically show up after closing, and people get pretty frustrated about that. Thankfully there are escrows, indemnification, caps, and baskets to deal with those dynamics. It doesn't mean everything's going to be perfect, but you need a mechanism to deal with those legal and compliance dynamics after the transaction closes — that's what it attempts to do.
Abby: How have you seen compliance programs, or the lack thereof, help or hurt you when it comes to closing deals?
Michael Lamm: It's become more commonplace to have, especially from a transaction perspective with Finalis, a process in place for KYC and everything that goes into making sure a transaction is completed with all the right checkboxes. I think that's needed across the industry in every sense. But it's certainly gotten better and more streamlined because of technology.
Abby: Just to close it out — what's the single biggest factor in closing a deal, in your opinion? How do you do it?
Michael Lamm: The single biggest factor — meaning, give me an example?
Abby: Like getting it over the line when you're in negotiations.
Michael Lamm: I know we talked about this earlier, but relationships, Abby, matter. When you need to call your client and have a heart-to-heart with them — are you really thinking this way, are you not seeing what's really happening in the legacy and the wealth you're about to create for yourself? I think the relationship, beyond anything — we're not robots, Abby, we're human beings, and human beings are making decisions every second of the day. You can affect the decision if you've got a relationship. If you don't, you can't help move a deal forward.
Abby: I think we're at the end, unless there are any questions you wish I'd asked that I didn't get to.
Michael Lamm: No, Abby, you asked a bunch of really good ones. I'd say for us, what we try to do every day is understand the other side from a transparency perspective, and be able to offer advice and guidance independently for people to make decisions. I think that's what we're trying to do every day with our clients, and I'd bet when you talk to other Finalis members, they're out there trying to do the same thing.
Abby: Yeah, it does feel like the bankers I've spoken to over the years, there's always that core of — you're in it because you actually care about your clients and want to see them succeed. This is great, Michael, thank you so much. And yes, we can take it — I have a ton of other ideas of things we'd like to do, so I'd love to follow up with you. We're trying to get five of these before we go out to market, but we'll run everything by you first, and we're going to do clips, and I may take a bit with a little blog with some of these things ahead of time, because I thought you had some really interesting insights in here, which is why we wanted to do it this way.
Michael Lamm: That's great, Abby. And look, if you want to kick it around, we could schedule a separate call at some point to talk about other marketing-related initiatives and things we're doing. I'm happy to bounce some ideas off you as well.
Abby: That'd be great. Also, before we set a date for a webinar — we're going to have Ross Wiener from our board on it. I don't know if you'd want to be on the panel, but it's going to be a very similar talk track to what we just did, a virtual webinar. If that interests you, we'd love to have you on board. I'm also trying to think of other people who might be interesting — a lawyer perspective, or anything, if you have any thoughts on that.
Michael Lamm: I'd do somebody like that, or an insurance person like we talked about — rep and warranty, somebody from Locked In or similar — because they also have an interesting perspective on legal and compliance dynamics in transactions. They could be a useful person to have as well.
Abby: That's great — yeah, if you have anyone you'd recommend, feel free to send them our way. I want a couple more, I think two bankers and then some more external perspective would be really interesting. If you're in, that's amazing, we'll send you the calendar invite. I think it's June 4th — let me just double check my calendar.
Michael Lamm: Yeah, what's the date, Abby? Let me check mine — I want to say June 4th.
Abby: And then usually with these, we'd do a call going through the questions and what you want to talk about, and then a prep call — a panelist prep call — a couple of days before, so everyone knows each other and there's a script. It is June 4th, and I have it at 12:40 to 2:00, so everyone comes in 20 minutes ahead of time. If you're game, I'll send you the invite.
Michael Lamm: I'm open — shoot me the invite so I can add it to the calendar.
Abby: All right, that's done. So that will be great, we'll follow up with you on that too.
Michael Lamm: Cool. Great, well Abby, great job on the interview, and Juan, good talking to you as well — just call or email if there's anything else that comes up.
Abby: Sounds great. Thanks, Michael. Take care. Bye.
Michael Lamm: Yeah.