Episode 1: Nishen Radia, FocalPoint Partners

Ontra founder and CEO Troy Pospisil and FocalPoint co-founder and managing partner Nishen Radia took a walk with Lola, Troy’s English bull terrier. They discuss the beginning of FocalPoint, the importance of focusing on the “why” behind business deals, and changes in middle-market M&A deals driving technological innovations.

Video Transcript

Troy Pospisil (00:02):

I’m Troy Pospisil, founder and CEO of Ontra.

I’m here in beautiful Los Angeles, California, with my dog, Lola. We’re about to meet up with Nishen Radia, the founder and CEO of FocalPoint investment bank. We’re going to learn a little bit about what it takes to build a market-leading investment bank and what’s going on in the M&A markets today.

Come join us.

Hey Nishen!

Nishen Radia (00:28):

Hey bud, how are you?

Troy Pospisil (00:29):

Good to see you. How’s everything?

Nishen Radia (00:30):

I’m great. And this is the star of the show?

Troy Pospisil (00:31):

This is Lola. Say hi to Nishen, we’re gonna go for a walk today.

Nishen Radia (00:35):

She’s friendly. She recognizes another Englishman.

Troy Pospisil (00:39):

That’s right, that’s right. Well, as I think you know, she’s an English bull terrier.

So, what brought you here?

Nishen Radia (00:44):

You know, I was at Merrill [Lynch]. I was doing banking for my whole career, and I got to the point where I kind of hated it. I wasn’t learning anymore. And so I quit, and I came out to LA and went to grad school. I met my business partner, Duane [Stullich], and we started our firm.

And it’s funny, you know, I got to a point in banking where I had just had enough because it felt like a job, and there was no real emotional connection to it. And then we started FocalPoint, and our principal thing is we help founders sell their companies.

We had this one deal a few years ago in Chicago where we had this entrepreneur who had an autistic son. We closed the deal, and we were at the closing dinner, and he turned around to me and said because of us and what we did, his autistic son would never have to worry again.

It really brought something home to me. I really realized it’s not what you do or how you do it that matters, it’s why you do it. And so doing the same thing in banking at Merrill was great, but when you have a real emotional connection, it really sticks.

Troy Pospisil (01:46):

That’s great. So what was the impetus to make the final decision — I’m not gonna go back to a bulge bracket, and I’m gonna start my own firm.

Nishen Radia (01:53):

I think it was that moment that was a real eye-opening moment for me because I realized it wasn’t banking I didn’t enjoy anymore. It was just doing it for corporations. And now, when the stakes actually matter to the client, it’s a lot more motivating.

Troy Pospisil (02:07):

That’s really inspiring. So, fast forward to today, you’ve built one of the most respected investment banks in the middle market, and you just had a huge exit to B. Riley [Securities], a huge financial institution.

I’m curious — when you started the firm, did you have this big vision of building a large successful investment bank that might have a big exit like this?

Nishen Radia (02:30):

No, that was never really part of the plan. You know, Troy, in my opinion, there are two types of entrepreneurs. There’s, you know, the guy who says, ‘Hey, I’m gonna climb Mount Everest, and I’m gonna build a company like Ontra and take it to the top.’

And there are other types of entrepreneurs who just build it by accident. You go to Base Camp one, and you’ve made some good decisions, and it’s working out. So you go to Base Camp two, and you still keep going, and next thing you know, you’re ascending the summit. And that’s us. We just made good decisions every day, worked our asses off, and here we are 20 years later, almost to the day, and it worked out.

Troy Pospisil (03:05):

That’s great. And what do you think are some of the most important decisions you made along the journey?

Nishen Radia (03:11):

You know, we never took a dividend in 20 years’ time. In 20 years, we never took a dividend out of the business. We just felt like we could use that money so much better by hiring or investing. So that’s what did it.

There are two types of bankers. There are those that keep it small and try and milk it for cash flow. And there are others that try to build something with some brand value. And we were all in. We felt like if we didn’t grow, we were gonna die.

Troy Pospisil (03:38):

That’s great. What are you most excited about for your partnership with B. Riley?

Nishen Radia (03:46):

It’s a bit like a dream come true for us because the culture is so good. These guys are amazing to work with, super entrepreneurial and aggressive. And we get to do different, more aggressive things. We just picked up a whole team out of Huron [Transaction Advisory LLC] on the healthcare side, which is a sector we love. We picked up 10 people.

Troy Pospisil (04:06):

Oh, that’s exciting.

Nishen Radia (04:06):

Yeah, we could never do that on our own. So we’ve got the ability to compete in a more meaningful way.

And the other thing is we just have so much more to sell. These guys do IPOs and SPACs and fixed-income trading and all these things that we never had at our disposal. So now when we talk to our clients, which now include private equity groups, we can just have a much more sophisticated relationship conversation where we can sell them a whole bunch of different things.

Troy Pospisil (04:32):

So you founded the firm in 2002, and you just sold it 20 years later. You’ve had a front seat to middle-market M&A for a long time. What have been the big things that have changed in the industry maybe over the last 10 years?

Nishen Radia (04:50):

The fundamental way we do deals hasn’t changed that much. You know, we’re always quite hands on with what we do. I think what’s happened that’s been really interesting is there are just so many more capital providers than there ever used to be. Ten years ago we’d go to market, and if we went to 50 names, that was a lot. And that was considered a lot.

And now, you could go to 150 names on our deal, if not more. So we’ve had to get smarter about how we do that because the war for talent, at the same time, has become much more intense. So how do you process more work with the same number of people, or at least people who are now worth and being paid a lot more? Those two things require you to innovate.

That’s why we use Ontra, because we had some turnover, like in 2015. We were trying to understand why this turnover was coming, and it’s because our analysts were spending hours until 2 or 3 in the morning working on processing NDAs. We just had to retrain ourselves to use technology and to use outsourcing to try and figure that out.

And so I think we’ve just gotten a lot smarter about how we do deals and we’ve gotten a lot smarter about how to use technology and people in different ways. And frankly, we needed to because it was really difficult to hire people.

Troy Pospisil (06:10):

That’s super interesting, and I’m really glad to hear Ontra has been helpful.

Nishen Radia (06:14):

Yeah, we drank the Kool-Aid on that one.

Troy Pospisil (06:16):

That’s great.

So it’s December 2022. A lot has changed in M&A in the last 12 months. It feels like we’ve gone from another billion-dollar fundraising announcement almost every day of the week to crickets in the M&A markets.

So what are you seeing in the markets today?

Nishen Radia (06:40):

Well, we went from 11 years of a bull market. You know, 2011 was the beginning of it. We did it in a risk-free rate environment of zero. So this buyout boom that culminated in 2021 was just powered by cheap debt.

And now, if you’re a borrower trying to raise new capital for a buyout, that cost of debt is now 10%, 11%, 12% money.

Troy Pospisil (07:08):

And what does that compare to a year ago?

Nishen Radia (07:11):

Seven, 8% money.

Troy Pospisil (07:14):

That’s huge.

Nishen Radia (07:15):

And so companies are not meeting their covenants anymore. I think what we’re seeing is buyers are being very judicious about what they put their money into. Generally, for most of them, they’re really focused on companies that make money.

In the old days when you had a zero-risk borrowing rate, companies could invest in growth, and it was an easy investment to make. Now a dollar today is worth so much more than a dollar tomorrow that companies and investors are really focused on how do we get a business model that can actually make money.

So it’s an interesting time, and we’re not seeing a lot of volume. Sellers still want yesterday’s price, and buyers want tomorrow’s price. And until they meet, we’re not gonna have much more deal flow for this year.

Troy Pospisil (07:56):

So what do you think will be the catalyst that’ll kick deal activity back into gear?

Nishen Radia (08:01):

Time. It’d be good to see if these rate increases start to slow down and if people can start to get a sense of how deep this recession’s going to be and how long it’s going to be. With the pandemic and the great financial crisis, we were in really deep, but we were also out really quick. I think this is going to be a lot more complicated than that.

I think once people start to get confidence that they know what they’re into, I think we’ll start to see buyers moving. And I think sellers will have to adjust their price expectations.

Troy Pospisil (08:30):

Nishen, it was so good to see you and catch up. Thanks so much for taking the time. This was a lot of fun.

Nishen Radia (08:34):

Yeah, it was a lot of fun. My pleasure. And great to meet Lola.

Troy Pospisil (08:37):

Lola, say goodbye to Nishen.

Nishen Radia (08:39):

Happy holidays.

Troy Pospisil (08:40):

Yeah, have a great holiday

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