Ep. 16 - Lessons from 25+ Years in Capital Markets and Debt Advisory with Grant Daunheimer

Chapter 1: Introduction

[0:00] In today's episode, I speak with Grant Donheimer, founder and partner at Diamond Willow Advisory, a Canadian debt advisory firm focused on working with middle market companies seeking between 10 to $50 million in debt capital. Grant started his career in the capital market side of the industry as a stock research analyst for over 15 years before transitioning into the private markets, which has helped him bring a differentiated approach to the debt advisory sector. He is a rain maker and dealmaker in the Canadian middle market, having worked with hundreds of companies over the last eight years and has strong opinions about what it takes to succeed in this industry. Grant shares his story in founding his firm and the lessons he learned along the way, while also bringing us into some exciting stories about the business owners he has worked with in the past. We also talk about the debt advisory landscape today and the trends he is seeing in both the Canadian and US markets and what his outlook is for next year based on the current economy. So, let's get into my conversation with Grant Donheimer at Diamond Willow Advisory.

[1:02] Welcome to the Inside Commercial Banking Podcast. This podcast is for commercial bankers who are in the business of lending money. My mission is to empower the commercial banking community by sharing best practices and the secrets to success through interviews with rain makers and dealmakers in the sector to help you fast track your career and achieve long-term success. My name is Robert Bazed and I started my career in the commercial banking sector. Today I'm a middle market M&A advisor helping Canadian companies sell. Thank you for listening to this podcast and be sure to check out my YouTube channel, Finance Kid, for more content on commercial banking and M&A related topics. So, let's jump into today's episode.

[1:40] Okay, Graham, thanks for making the time. How are you?

[1:42] I'm doing well. Appreciate you having us on your show. I'm excited to bring on the deck cowboy.

[1:47] I love following you on LinkedIn and love all your posts and everything. So, it's an exciting one for me. So, thanks for making the time. I've never been called the deck cowboy. That's — I might have to use that.

[1:55] There you go. You're going to be the John Malone of debt advisory, right? Not cable cowboys, but cowboys. Love it.

Chapter 2: Equity Research Background

[2:01] Okay. I'm really interested because your kind of entry into the middle market debt advisory space is different than most. Most people climb up through the banks. They spend a lot of years in the private middle market space and then they kind of strike it out on their own. You actually kind of came through the equity research and capital markets more on the public market side and then you got into the private debt advisory space. So I'd be curious, just maybe take us back to the start. Tell us a little bit about your journey to this point, your career to date.

[2:26] Yeah, we're probably the only debt advisory shop with no one that's ever worked at debt. But frankly, it's been a bit of a unique strategy. So I spent 17 years in capital markets on the equity research side. And again, it's the beauty of that business is the exposure. Our job was to pick stocks, become experts in an industry in a suite of stocks. And so you got exposure to macroeconomics. You get exposure to CEOs, CFOs. For us, it was all the geo people. Then you become an expert in the oil and gas company and learn engineering and geology. And then you got to go travel North America, talk to all the money managers. So then you get hedge funds, mutual funds, long short, all of those groups. And so it was a really interesting background. It just taught you a lot about analysis, people, how to read people, how to sell to people.

[3:10] And more importantly, I think in energy, how to manage cash flow. And people always say, 'What do you — how do you do in debt if you've never done debt?' Man, you find me a business harder to manage cash flow than oil and gas. A third of your product disappears every year. You have a massive capex burden to try to get it back and you're on a constant treadmill. And so understanding the cash burn cycles of oil and gas — the biggest problem in business is usually access to capital and cash.

Chapter 3: Differentiators and Grit

[3:43] And I'm curious — when you look at it, you've obviously taken this industry by storm in the few short years that you've started Diamond Willow. So I'm curious, what would you say are the unique skills that differentiate you in the marketplace?

[3:50] Yeah, for us I'd say it's two things. One, we have a relentlessness like most don't have, and I think that comes from private capital markets, equity research — we have investment banking, we have a private equity team, like a godfather of finance in Canada on the east coast. He educates all the CPAs across the country. He's worked with two famous billionaires. He's on their boards. He's in their investment companies. He's managed their portfolios. So he's got a background in everything finance and business. And so I think the grit that came from just those roles is unlike almost any other industry.

[4:21] And then second, we don't come at any capital raising problem with a predetermined formula. People joke about the box of banking or lending. We don't have a box. We've done equity, we've done converts, we've done debt, we've done senior debt, private debt, bank debt. We look at things very holistically and go, what's the best solution for this company? What's the proper capital stack to make this work? And then how do we bring in all the right people to make that happen? So our ignorance on debt is actually ironically our strategic advantage — we just don't have a box to think from and everything's a new creative problem to solve.

Chapter 4: Why Start Diamond Willow

[4:56] Love it. And that's one of the reasons why I wanted you to come on to the podcast because I think you have a pretty unique perspective of the lending landscape in Canada today. So we'll get into that. But okay, so after 16 years in the public markets, you then decided to get into debt advisory. What pulled you in this direction? What opportunity did you see — why'd you start Diamond Willow?

[5:14] Yeah, first thing was boredom — that's what led to an exit from capital markets. There's only so many ways to spin oil and gas companies in Canada, right? Like you're a price taker. You've got the worst economics in the world. And so I got pretty bored of that analysis side. I then got to run teams — energy research teams at a bunch of firms. And you're talking like maniac people, right? Like we're all in at 5:00 am. We're all workaholics. There's massive addictions to drugs and booze and whatever you name it. There's no HR in the place. And so the motivation to learn those people and figure out how to get them to work together and lead them — super exciting. So I got to do that for a long time.

[5:56] But then I saw the basin get mature, the oil and gas basin. There were holes everywhere. We knew where the hydrocarbons were — we're just figuring out how to get them out. I saw the money managers consolidate. They needed big pools of money to trade. So their investable universe of oil and gas came to 12 stocks. And so I was like, 'This is over. I'm out.' And I was just bored of it. I accomplished everything I needed to and needed to get out of the way for the young people to come do what they wanted to do and take over.

[6:21] So that was the precipice to exit capital markets. I did have offers to go back, but I was like, 'No, I'm bored.' And I took some time off. I was pretty burnt out. And I was like, 'Okay, I need a new challenge. I know public equity really well. What don't I know? I've never done private equity and I don't know anything about debt.' So I just started researching private equity. Talked to a bunch of those groups, met some people there. I started talking to lenders, went to all the banks, and then started talking to some of these private lenders. Got introduced. One — BDC has a group that acts like a private lender. Then I talked to another group called Crown Capital. It's like just non-bank stuff. And another group called Pillar Capital. It's mid to high teen money for one year, asset backed by equipment, real estate — solving problems like high growth companies or companies that got into trouble but have a way out of it. And I was like, that's cool. I didn't know that world existed.

Chapter 5: Diligence Gap Insight

[7:08] So we end up, strangely enough, doing more research and realizing there's these things called debt brokers. And I always thought there was like mortgage brokers only. And I was like, I don't want to go be a mortgage broker. And then it was actually the head of Pillar Capital, Steve Daep — 'You should be a commercial debt broker.' I was like, 'I don't know what you mean.' And he's like, 'You could go solve all the diligence problems between the borrower and lender if you just set up your own advisory firm.' And I was like, 'That's interesting.'

[7:31] So then I started doing a bunch of research on debt brokers and I was like, 'Oh, unregulated, very fragmented, most people are ex-commercial bankers.' Could we go solve a problem? And so then I went and talked to a bunch of the CFOs that I knew of the public companies and I'm like, 'What bothers you about your loan?' And they were like, 'Ah, they don't know my business that well. They ask a million questions. It's a yes until it's a no.' And I was like, 'Oh, okay.' And then I went and talked to a bunch of lenders and I was like, 'What bothers you about your borrowers?' 'I've got to ask so many questions — 10 at a time.' And all of a sudden you discovered the pain point: the pain point of lending and borrowing is diligence in the middle.

[8:09] And I was like, 'We've done diligence for 20 years. We built models. We identified risk. We wrote reports. What if we go and set up a diligence advisory firm?' And so we did that. And then I also thought — at the same time I met Matt Burphy, an amazing guy, a great business partner. He wanted to set up a private equity shop, so I was like yeah let's do that. And so we actually set up both — which I would stringently advise against: starting two companies in industries you know nothing about at the same time to try to get a better lifestyle after working 80-hour weeks. Epic fail. I work more now than I've ever worked in my life.

[8:43] But that was it, really, Robert. It was: we thought we could raise the professional bar in an industry that's unregulated and provide huge value to that mid-market which has a huge impact on Canada.

Chapter 6: Why Use an Advisor

[8:52] And you've already answered half the question, but when you're meeting with a business owner for the first time and you're really explaining why they should deal with you versus just going directly to the bank — how do you have that conversation?

[8:59] Almost everyone we talk to has shopped the banks. If they haven't, we beg them to just leave one bank for us. And so what happens if you go to a bank — say you go to the bank in Calgary and they say no, right? For whatever reason: too risky, not enough financials, bad historical year. If you drive outside of Calgary and go to Red Deer and go to the same bank because you think you're going to trick them and find a new person — the banks code you. Same in Toronto, right? You can't go downtown Toronto and then go to Hamilton. As soon as you approach that bank, you get a record created in their files and it says this person was rejected at this time for this reason.

[9:35] And so we beg them — just save one bank — because we don't know your situation well enough, but it's likely that if you told your story right or structured things differently — like your acquisition is just structured wrong, or you're not telling the story right, or you're asking for too much money out of the gate, but we could stagger it in over time on certain performance hurdles — if we could just see the structure first before you burn everyone, maybe there's a chance to do better.

Chapter 7: Bankable vs. Private

[10:03] Yeah. And so is that it? Like when you look at what you're doing, if someone has an LOI or they're a high growth company, is it really you're looking at structure and trying to position that risk in a different way so that the bank can digest it?

[10:15] What we do is we figure out the appropriate capital structure. We advise on what would be an appropriate use of bank debt or private credit debt versus equity and how those ratios change, and then figure out what's the proper capital stack. What's the risk-reward relationship and how do we align that amongst equity, debt, and other investors to make a structure that gets you the best cost of capital — or a structure more importantly that allows you to go execute on the growth.

[10:38] Right. Banks don't — we do really high growth deals. We call it 'scaling' because it's beyond 10 to 20% growth. It's: 'I've got an opportunity to double my company but I need this much capital to go double my manufacturing capacity,' and their bank is like, 'We're not taking the execution risk on that.' So sometimes it's like: let's go private, price it appropriately, maximize the reinvestment of cash flow so that you can grow as fast as you think you can execute on that plan, and then that term nets back into a bank. Private credit is a stepping stone for us. It's not a hole.

[11:12] So how often do you go between — percentage wise — between private and more the banks, the deals you're working on?

[11:19] Yeah, about 30% of the deals we've done are bankable out of the gate. And those are almost all acquisitions — and it's acquisitions we were able to get in early enough, or the seller was patient enough, and we restructured them or structured them out of the gate and made sure they were bankable. So we have three buckets: those scaling companies that need private capital to accommodate the growth and then they go back to a bank; acquisitions where if we can get in early enough and do our magic, definitely bankable — sometimes it's time exhaustion and deal exhaustion, so we got to take it private first for a year and then it goes back to a bank; and the other bucket is turnarounds where you're getting kicked out of a bank. So about a third of the time it's bankable. The other two-thirds have to go to private credit first and then come back to a bank.

Chapter 8: Ideal Client Profile

[12:13] Yeah. And before we get into the detail — when you look at the average client for Diamond Willow, what would that be in terms of size? Are there certain industries you're seeing more of? Are you doing US companies and Canadian companies? Just walk us through the average client for you.

[12:28] Size has been more dictated by capital availability. The private markets raised a lot of money in the last 10 years and they've got bigger funds — they want to have greater exposure and get their money out. So now if you're an unsecured borrower — and that sounds technical — if you don't have AR, inventory, equipment, or real estate, think of like an engineering firm, an advisory firm — it's just people, you don't have those tangible assets. There is zero option in Canada sub-$5 million privately. You have to structure that to be payable. There's just no options.

[12:58] Even $5 to $10 million without hard security — there are seven options in Canada. One of them are crooks, so we deal with six of them. Once you get that $10 million and above debt ask, the options become almost limitless. And so if you don't have that hard security, $5 million becomes the minimum for us on deal size. If you do, we can help you get money down to a million bucks, but usually for that small stuff our process is so robust that we just refer people to the right lenders. So we typically start at five. Our top side is usually $75 million — only because when companies have or need that much money they're usually with one of the big accounting firms, and the big accounting firms step in and help them.

[13:40] Industry-wise we work on everything. And on the US — yeah, we do a lot of crossover stuff. US companies coming to Canada to buy and they've exhausted the banks or don't have contacts — we help them. Or Canadian companies buying in the US — we're able to help those groups enter the US market as well.

Chapter 9: Canada vs. US Lending

[13:58] And do you find there's a difference between the Canadian private lenders versus the US private lenders in terms of aggressiveness and quality?

[14:06] Yeah, the markets are very different. Everyone thinks the US lenders are going to be super aggressive up in Canada. I find — unless they have people here — Canada feels like a nuisance. They often have their Canadian guy out of Chicago and you call them and you're like, 'Hey, I've got a $20 million Canadian peso deal in Fort St. John, BC.' And you can just hear them Googling Fort St. John, BC. And then I'm like, waiting for it. 'Oh let me guess — you're maxed on your Canadian dollar exposure.' And they're like, 'Yeah.' So if it's not in Toronto, Vancouver, Calgary, or Edmonton and they don't have a body here — very difficult.

[14:51] As far as aggression — I don't think they're more aggressive than the Canadian lenders. It's so competitive that they match it up here. That being said, in the US it's a completely different world. A thousand banks versus six. Super competitive. National banks, regional banks, hundreds of local state-specific banks. Much more sophisticated than Canada. Canadian private credit is really focused on a narrow part of the lending market — 'I just do factoring of accounts receivable,' 'I just do equipment,' 'I just do agriculture,' 'I just do aviation.' In the US you call them and you're like, 'Hey, I need $30 million,' and they're like, 'Okay.' 'Do you want to know the security or structure?' 'No, that's good. We'll figure it out.' They're more open to all the structures because they've been doing it longer than we have.

Chapter 10: Tighter Credit Market

[15:39] And then I'm curious — now, especially with the tariffs going on — how have you found the market's changed? Are certain industries not getting that appetite from the US anymore?

[15:56] Lenders want to get their money out. It's a study of incentives, right? I don't think they're less aggressive. I think on the whole it's much harder to raise capital right now than it has been over the last eight years, whether it's bank or non-bank. We've got numerous deals on the go that should have been a slam dunk — would be a slam dunk two years ago — that are struggling right now. It's just a lot tighter credit market. You've got the volatility. You've got tariffs. You've got Trump. You've got Carney. What's going on? Are the big projects happening? Are they not happening? Sounds like we're doing something, but we're not doing anything.

[16:25] We're seeing just hesitation on big project spends, growth, expansion capital. Instead, we're seeing like 55% of our deal flow being distressed turnaround. Used to be a third. Used to be a third growth. Now it's 55% distressed, 45% acquisitions. Those with capital are taking advantage of the fear and weakness right now.

Chapter 11: Managing Type A Teams

[16:48] You mentioned in your previous career managing high-performing workaholics. For our younger listeners that will eventually step into a management role — what are your management lessons? What did you learn managing those types of people?

[17:05] I always think there's two things you can learn from people: what to do and what not to do. Capital markets are full of people you learn what not to do from. Why are we working every weekend? Because I had to work every weekend. Why do we yell and scream at everyone? Because I got yelled and screamed at. Why aren't we efficient? Because no one's ever been efficient. So for me it was looking at the mentors and people above me and going — why do we do some of this stuff?

[17:29] So we just instituted Monday morning meetings — just a quick talk. Okay, it's reporting season. Everyone knows you're going to live here for two weeks. Let's hammer that out. But when it's done, we need to have a macro-themed report. What are we going to do? Let's throw around ideas. Okay, one of us needs to go to Toronto, Montreal, New York, Boston this week or next week — who's going to do it? Are we covering for them? So we just got really organized and got rid of all the facetime, and I said, 'Listen, if we work really hard Monday to Friday, we shouldn't have to do weekends unless there's a big project on the go.'

[18:07] Defining the culture of communication, no ego, we're all on the same team — that was key. That sort of depressurized a lot of it. 'I'm not your boss. We're all in this together.' Our teams were so cohesive that we always had each other's backs.

[18:31] But individually, if you're going to lead people, you've got to lean into leadership. I've got some books — Extreme Ownership, amazing book by an ex-Navy SEAL. You really had to learn what drove everybody. Some people just wanted appreciation. Some people were title junkies. Other people were just good honest hard workers who wanted to see the ability to grow. And so it was managing everyone's career path, what they liked, and then figuring out what motivated them specifically. That's leadership — great culture, and then you've got to drive everyone individually because everyone's different.

Chapter 12: Early Business Mistakes

[19:30] When you look back at the early years and starting Diamond Willow, what did you find were the early mistakes you made? What were the key lessons you learned in building this firm?

[19:41] Robert, I wish we had finished learning some key lessons. I'm still shocked at how bad I am at running a business and how many lessons we're still learning. But I would say the biggest failure I made — and continue to make, but I'm trying to get better at it — is not adapting to our new audience. I started in capital markets while I was still in university. I have a really narrow perspective on life which was capital markets and big public companies, and I was too stupid to realize that's not how private mid-market or small companies operate.

[20:14] So our biggest failure has been approaching the market and assuming: if you're one of the smartest people or have the best intel and aren't massively unlikable, you will get hired. In equity research, the portfolio managers are like, 'Who's going to give me the edge on information so I can have the best stock picks?' So if you didn't have to be a total jerk and were good at your job, you'd be great. If you were the smartest, you got hired. In this business, we started writing all this smart stuff and posting great research reports. Nobody cares. They want to know: are you likeable? Do you want to go in the trenches together and do this capital raise? So we failed epically at how we addressed the market.

[21:14] And taking that approach right to the business owner — we failed miserably up until even recently. When we'd get approached by a business owner saying 'Hey, I need 30 million bucks, I want to go do this growth thing,' in my head I would default to WhiteCap Resources — a public company CFO calling needing half a billion dollars. And I wasn't questioning whether it was a good idea, whether they'd modeled it out. Often these mid-market companies don't have 30-person finance teams. And so we would just hit them and go, 'Okay, 30 million bucks, 2% success fee added to the loan, let's go.' And we would just scare them all off.

[22:09] So that's why we've adapted our service to be: 'Are you sure? Can we come help you make that decision? Have you modeled it all out? Have you structured the acquisition? Can we please structure the LOI before you do? Can we help you scrub the target? Can we build the model for growth? Can we help you with the recovery plan? Let's really make sure you understand the capital stack.' And then if it goes into a financing, great. If not, no problem. Our biggest failure at Diamond Willow was not understanding the needs and mentality of the mid-market.

Chapter 13: Trust Before Fees

[22:48] I'm nodding my head as you're saying this because that is one of the biggest lessons I learned as well — just in general selling to the middle market. The reality is the middle market can never really assess you on your technical abilities. They can't say whether you're a good debt adviser or not. They can only judge you based on how you make them feel. Do I trust this person? Can I work with this person?

[23:10] And the second half of your answer is: trust before fees. A lot of what we do — there's so much value add — and sometimes people see that as free advice, but you have to do that to earn the trust. Because once the trust is there, then you can put together those $100,000-plus fees. It's completely different than the upper middle market in the corporate banking space where customers are used to paying million-dollar fees. That's the fun of this area of the marketplace. You're not as commoditized because the business owner really relies on you, and often times you're giving really good advice that they never thought of.

[23:41] You're way smarter. You've been at it — couple of years at your own shop — and I'm eight years in and still failing. I need you to write a book. You can come and teach me how to run a business.

Chapter 14: Fee Structure Explained

[23:51] Love to understand — how do your fees work as a debt advisor? Just walk us through that.

[23:56] Yeah, for us it's all about alignment, right? We want to win when our clients win. So we do tons of diligence up front — for free — understanding the model, what's going on, what their needs are, does it make sense? And only then do we go back to them and say, 'Okay, we can get you $25 million, but because of the structure of the growth plan it's not going to be bankable. So it's going to be 12% or better, but we'll put an 8-year am with interest only. Cash-wise, not a lot of cash out the door, but you've got to execute on what you said because it's really cheap for two years, but you've got to get back to the bank by then — otherwise that third year is going to be awful.' And we say, 'Does this make sense? Are we on the same page?'

[24:37] And only then would we charge monthly work fees. They're in the thousands of dollars. And then it's a success fee and we fund it out of the loan. But I want to be very clear: we don't get kickbacks from lenders — and it sounds crazy, but this happens in our business. We can add our fee to the loan balance, but we never get paid by a lender. We don't add points to the interest rate. We don't take kickbacks. We don't take referral fees. It's usually — depending on the size — one and a half to two and a half percent of the loan value added to the loan value. It's a cash out of pocket usually $8,000 to $10,000 before we have a solution for you. At that point you can fire us and move on, or not, and then it rolls onto the success fee at the end.

Chapter 15: Process and Timeline

[25:17] And what about timing? How long does it take for you guys to get ramped up, take it to market, and then the closing process?

[25:23] Yeah — a lot of that depends on the client and gathering information. So let's say we have everything we need. Our process is building a three-statement iterative model customized for lenders — it has their toggles, their outputs, all the sensitivities built into it. We get a 25 to 35 page CIM — confidential information memorandum. First four pages are like an executive summary. A lender only has to read that and they're a yes or a no. The rest we've customized to their loan application and credit process. So each page is literally copy and paste — it's everything they need in it — and then we have a data room behind the scenes.

[26:04] We don't go to market until that's done. We don't throw a two-pager at the wall and hope to get traction and then come back and do our homework. That whole process — one to two weeks to get done, assuming we have everything. We're pretty efficient on that side. If you ever met Haley — she is the goddess of Excel and efficiency. But we've divided our roles. Everyone at this firm has a very definitive role focused on what they love to do. So we have me — lead generation, BD, marketing, content; Blair also in market; we're trying to hire community builders in Toronto, Calgary, and Edmonton currently. And then we have the execution team.

[26:55] So two weeks to get ready, then two weeks and we'd have term sheets — so you're a month in before you have your options. After that, a month in diligence with lenders, right? They want to come in and meet the customer. We open the door too — we are not elbows up on this stuff. We believe you're lending to people. Business is about people. Our clients don't want to meet with 30 lenders. So once we've got the dance partners at the table, we open that door. I'm always the bad guy — if there's anything contentious, you throw me under the bus and I deal with it.

[27:31] So typical process — say it's an acquisition, $20 to $50 million — beginning to end: three to four months. If closing is high probability and time matters, especially in M&A, we can layer the legals on during diligence and overlap them. You're risking some legal fees, but we can cut that timeline even shorter. A typical deal: 3 to 4 months beginning to funding. We've done factoring deals in four days, but a full process deal is three to four months.

Chapter 16: Why Deals Fall Apart

[28:02] And where do you find that in these processes — if a process does fall apart — what causes those deals to fall apart?

[28:08] I'm trying to think if we've ever had one fall apart at the end. We do so much diligence in the middle. The only time — yeah, there's one. We had a startup — the guy's fifth company making money, but huge spend on marketing and international growth, tons of revenue, but just on the cusp of cash flow positivity. And so the next few months were critical to flipping the switch. I sat down with three CAs, amazing people, and we went through the model for every month, every line item. We got to make sure these are right. And then we go to market. Two or three weeks later I'm like, 'Okay, I need your October numbers.' And the one person was like, 'You're not going to like them.' And I'm like, 'There's no way I don't like them — we went through every line three weeks ago.' And they're like, 'We had a sales party and spent a million dollars and instead of being cash flow positive, massive negative.' And I was like, 'When was the party?' And they gave me the date. And I was like, 'That was before we went through every line item in your model.' Done. Stop the press. The story has changed.

[29:19] Oh, now you triggered me on another one. A public company. I'm literally filling out the loan agreement — the back of it, which is the current financials and borrowing base — and I call the CFO: 'Hey, I know you haven't released the quarter. I need the quarter to update this sheet.' And he says, 'No, just use that other quarter.' And I was like, 'Pen down. What happened?' 'Our number one distributor and client didn't order anything last quarter. They overordered before, so we have zero revenue.' And I was like, how stupid could you be to get a loan and fund immediately into a default as a public company especially? And so that one I stopped the presses, refused to let the loan close, and put it on hold until things improved. Borrower surprises.

Chapter 17: Debt Deal Filters

[30:22] When you're young — in debt advisory or commercial banking — you're in a hurry to succeed. Every deal looks like a deal. But one of the things on the classic journey is you eventually build a filter to be able to say, 'Ah, this isn't really a deal.' How do you decide whether a client is a good fit or not?

Chapter 18: Cash Flow First

[30:48] Lending comes down to exactly three things in this order — and this is the only scrubbing you have to do if you want to raise debt: cash flow, assets, and guarantees. You have to have one of the first two to have debt. You cannot get debt on a guarantee only.

[31:05] The returns on lending are minuscule — single-digit percentages. Even the higher cost private debt people have raised capital at 10 to 12%. Their returns aren't huge. So they can never lose money. Number one rule of lending: never lose money. And so you've got to look at multiple ways to get repaid. First is always cash flow. If the cash flow fails, can you sell their stuff? And if you can't sell their stuff, can you go after personal things that they have?

[31:38] So that's our screening methodology. Is there cash flow or a path to cash flow? We want robust revenue drivers and pipeline. If we can get our heads around that and understand the cash flow velocity — you don't have to have it now, but you need to have it sooner than later — then it's assets, and still we want visibility to paying the debt. Lenders never want to just sell your stuff. We really look hard at: what's that pipeline to cash flow? Is there a backstop on assets? And then as a third and final: is there a guarantee to mitigate some type of risk in the deal?

Chapter 19: Character Gut Checks

[32:04] And what about character? How do you really determine whether this is a client you want to work with from a quality perspective?

[32:09] One of our first clients — I fired them at the signing of the term sheet. Something just went funny. You talk about young people and the motivation — you don't get paid for that month or two or three if you can't close that deal. And I know my partner at the time freaked out, but I'm like, something has gone wrong with our client. They're not signing the term sheet. It was during COVID. 'Oh, my sister's locked in a room because she has COVID.' I'm like, slide the piece of paper under the door, right? Something happened and I still don't know what happened, but there's no fee large enough — especially in small debt deals. I didn't risk my reputation for million-dollar fees in capital markets. I'm sure as heck not going to do it for 100 grand here. There's no fee big enough to burn your reputation.

[33:01] And we actually went to the lender and said, 'Put a deadline of tomorrow.' They didn't sign it. And I had Aaron call him, and we fired him. Said, 'I don't know what's going on, but I don't trust you anymore.' So it's that gut feel.

[33:14] Once you start asking a bunch of detailed questions, that's usually where the questionable character people disappear. 'Oh, you're going to dig into me? I'm out.' And then a new tool we have — which is really simple — we Google them. Google the people. Google reviews, Indeed reviews, Glassdoor reviews, lawsuits show up, things show up.

[33:27] We had a guy in Vancouver who said he was a surgeon, going to open a surgery practice, needed all this money. Met with him online a bunch of times. I'm like, 'You're never in surgery gear.' 'Oh, I don't do the actual surgeries.' 'Okay, you're the businessman now.' And I had some of the associates Google this guy. He's a doctor, a surgeon, he wrote papers — we could find only one thing online. He was in a picture on a boat with two young girls under his arm. And the next call we had, I said, 'Listen, doctor whatever — I hope you had your two daughters on a boat with you, but I don't think you're a surgeon, and I think you're a fraud.' And he yelled at me, and immediately hung up.

[34:11] So it's that gut check, that gut feel, ask a bunch of questions, Google them, find out if there's lawsuits, ask for their ID. 'We're going to need a picture of your driver's license for the loan application.' Just things like that. And you've got to trust your gut. There's no fee worth doing a bad deal with a bad person.

Chapter 20: Who Thrives Solo

[34:26] There are a lot of commercial bankers listening to this who are secretly dreaming of one day leaving the bank and starting their own shop. What type of person is best suited for this world — in terms of skill set, personality, approach to career and life? And what's the advice you'd give them?

[34:46] You've got to have ultra high risk tolerance. There are times you're not getting paid. When you're a success-based advisor and you don't have much for salaries, you've got to have an ultra high risk tolerance and you need to be immune to rejection, because you get a million doors slammed in your face every day. You have to be able to get up one more time than you get knocked down. You see a brick wall and you have the mentality of running face first into it every day to break it down. That's what you need.

[35:15] And you must have it — because it's terrifying. Imagine: I haven't had a salary since 2007. Going from a job at a bank with salaries and benefits and a pension plan — having all that safety net, you underestimate the comfort that provides. When all of a sudden you have nothing — every deal is your credibility. Things go wrong. We had one deal go bad after funding. Thank God there's nothing we could find in diligence, but it happens. Being able to fire that client early on when you're like, 'Okay, we're not getting paid this month' — it is terrifying. I was lucky to have had a decent time in capital markets, so I had a buffer.

Chapter 21: Better Banker Playbook

[36:01] You're dealing with a lot of different commercial banks. Just from an advice perspective — where do you find the good ones versus the mediocre ones? What separates them in your eyes?

[36:12] What I think will make a great banker — or the bankers we really want to interact with — are the ones that are realistic about a deal. Because we give them all the risks; we do their job pretty quickly for them. I think if you're going to be the best banker over time, have the guts and learn to say no with an education — quickly. Stop just saying no. People are okay to hear no. Everyone's scared to say no. Business owners get told no a thousand times a day. Every business owner deals with rejection constantly. You're not offending them by saying no. What's offensive is if you say no and don't explain what it takes to get to a yes.

[36:54] So it's like: 'Listen, I can't do your deal now. We can do up to 75% debt to EV on an acquisition, but we cap out at three times debt to cash flow. So if you're just paying too much, we still aren't going to just give you the money. If you want to restructure your deal and put some risk on the seller — do a VTB or whatever it is — then we could do it. Or: our debt service coverage ratio has to be 1.2 on a trailing 12-month basis. Once that works, I will give you all this money. But stop jerking them around.'

[37:47] The salespeople at the banks get paid on new deal generation. So they're a yes until the very last minute. You don't do yourselves any favor for a deal that's obviously not going to happen by keeping it around too long. You just piss everyone off. Scrub quickly. Say no. Provide an education. People will love you and come back to you when they're bankable. And all the banks have generally the same metrics — so you're not losing it to another bank if it's so offside on covenants or structure.

[38:31] Yeah. Honestly, I'd answer the question in a very similar way. The one thing I see — and you have it in spades — is the authenticity and the ability to communicate to business owners in a way that's digestible and easy. There are a lot of people walking around who think of themselves as salespeople versus advisers. I always think about the yin and yang — you've got sales in the white category, advisory in the black category, and every day it constantly changes. Sometimes you have to sell. Sometimes you just have to get your foot in the door, but once you get your foot in the door, it shifts from selling to advisory. I don't think a lot of people can do that. They're either salespeople, or they're so overly analytical that they're not relatable to the business owner.

Chapter 22: Do the Right Thing

[39:42] We have an overarching principle that guides our behavior at Diamond Willow. It's called: do the right thing for whoever you're talking to. Right? Do the right thing. Don't worry about getting paid. Do the right thing.

[39:52] It's sometimes tough with some of the young people because they want to see that deal and get paid. But we track all our stats. Now over 20% of our leads and referrals every year come from people we've helped in the past — and that was zero for six years. Because it's a long sales cycle. Some of those people, it took three years because we educated them. 'You're not quite ready for any type of debt. We're going to educate you on when you would be. We're going to introduce you to our whole network that can help you get there.' And they come back. So doing the right thing pays back over the long term.

[40:25] The problem with the banks is half those people are in that role for two years. If you do the right thing, in four years that person comes back — but they're like, 'I'm not going to be at this bank and I'm definitely not going to be in this role.' So the bank structure is their own worst enemy. I just think it's stupid the way they operate.

Chapter 23: Clean Up Financials

[40:45] If you're in front of a business owner early on enough, what advice do you have for them in terms of getting ready to raise capital? What are the early best practices?

[40:57] Every loan reverts to the financials. They're all mathematically driven. Get tight on financials and reporting. Pay for the bookkeeper. Get your books tight. And I hate to say it — you've got to pay an accountant to do review engagement statements. The internals just don't fly in a capital raise. And you just need good tight financials. That means: stop running everything personal through the business. You can tax-efficiently move money out of the business for personal reasons — I get it. But you can't come back to me and say, 'Hey, I ran 20 things through there and instead of my cash flow being negative a million, it's actually three million.' No. You've got to be open, honest. You've got to spend a year or two getting your books clean and well prepared. Otherwise, no one's having that discussion with you.

Chapter 24: Normalization Horror Stories

[41:58] What's been the wildest add-back you've seen?

[42:02] Oh, the one that makes me the most angry — it was a northern BC construction-type company. Negative EBITDA forever. But then he tried to convince us that he used the equipment to build a dugout on his ranch — his farm — and if that equipment could have been used he would have charged someone this much. So the normalization was like $4 million. And I was like, 'But dude, the equipment wasn't being used. You have nobody using your equipment. So you can't charge a full marked-up market rate when it was just labor and a bit of diesel.' And then to have his accountant tell me to f*** off because I didn't know what I was talking about. I was just like — we're done.

[42:56] Yeah. What have you seen?

[42:58] Honestly, mine are more classics — fake inventory write-downs and then reversals the next month. Bad debts. There was one that was really wild where it was literally a snowball over 10 years. They would book the bad debt allowance and then reverse it, but then next year they wanted to do it again. So they'd have to up the allowance. You could literally see the allowance year over year: 100, 200, 300, 400, 500. It would reduce the income, but it was just literally the snowball. At a certain point you're going to have to reverse this. So all you've done is kick the income tax obligation down the road. When you sell this business, you're going to have this huge income hit that's going to be horrible for you.

[43:42] Capital buyers find all this out eventually. Like, at least two years before you want to sell, you've got to get in there and clean things up. You've got to structure it well. You've got to have succession plans. Really clean the ship to be able to sell a company. And same thing in a capital raise — it's got to be clean and transparent. If we have to explain half the line items on your income statement, it's just not going to work. Buyers and capital providers have millions of options. They don't need you. And if it looks sketchy, they just move on to the next.

Chapter 25: 2026 Capital Markets

[44:21] We're sitting in the middle of 2026 and you mentioned it's a hard market to raise capital in both debt and equity. What trends are you seeing in terms of cost of capital, amortization, leverage levels? Are the banks also pulling back?

[44:45] Yeah, banks are scared of all the uncertainty — so the banks put an overall lens of fear on top right now. Really easy, free money deals, they're going to do them. But the trade issues, the Trump issues, the big projects that could happen — all the things in the world that are scary right now are jading the banks from stretching. They're not going to do longer amortizations. They're going to try to tighten renewals.

[45:14] And on pricing — banks cannot price risk. This pisses them all off when I say it. It's prime plus two or it's no deal. They'll do a deal at 6.5%, but the next private deal starts at 10 to 12%. There's a gap in Canada in that 7 to 10% range that no one can fill. So all these companies with a little more risk are stuck at either bankable or up into the double digits.

[46:18] Trucking is still a disaster. Agriculture — thanks to Ukraine and everything going on — is a pending disaster. We talk about private credit crisis in the US, but we've been in a private credit crisis in Canada for two years. It's called real estate. It's our only concentrated sector. Gated funds, not allowing redemptions, massive write-downs. Banks are 55% leveraged to real estate. And private credit is harder to raise because there've been a bunch of blowups and fraud. So reporting is much more stringent, and deals that would have been a slam dunk two years ago — people are really stressed to do right now. It's just much tighter in Canada. Structure matters more than ever.

Chapter 26: Industry Stress and M&A

[48:05] What are you seeing in terms of highly active industries versus the weakest right now?

[48:22] I'm going to give you the top five themes. Number one: banks are exiting files fairly quickly. The COVID distress is done — that all got bankrupt in 2024, which is why you saw insolvency stats down in 2025 but still elevated historically. Banks are taking bigger loan loss and credit loss provisions and being way more active exiting businesses. That's the bad news.

[48:47] The good news: all this economic stress is creating an amazing M&A market. We're seeing more M&A than we've ever seen. Succession — but not just succession. People with capital are taking advantage and willing to roll things that are a little distressed into bigger platforms: minimize the distress, get synergies, drive down fixed costs. The big two trends are: distress across the country, and opportunistic buyers taking advantage of the unknown and willing to be patient.

[49:22] Like right now when people ask how the M&A market is — honestly it's busy, but it's also choppy. There's a lot of stuff going on and everyone wants to do something, but you have to be very selective in what you take on, because some of this is crap and it's not going to transact. Especially in a success-based role.

Chapter 27: Next 12 Months Outlook

[49:42] Tough crystal ball question: where do you see the debt markets 12 months out in Canada?

[49:49] I think it's going to continue to be a challenge to get capital in this country. Until we really see the output of growing Canada back — big projects starting, some of that economic overhang getting solved — I think there's going to be an atmosphere of fear and conservatism. Those that have access to capital are going to have an amazing opportunity to consolidate and buy, but they've got to be patient and they're going to have to use some equity, or the sellers are going to have to provide structure. Sellers know: rollups, VTBs, rolling in equity, longer succession planning. We've seen cash on close come down over time, with sellers having to carry more risk. Capital is going to be tougher, and the winners are going to win — but they're going to have to do it with some equity.

[50:40] I echo those comments. Valuations haven't come down, but structure has definitely shifted more towards the buyer's favor — less cash, more seller financing to hold those valuations we saw in previous years.

Chapter 28: The Deal That Saved a Life

[50:56] You've seen lots of deals. What would be the most interesting, most memorable transaction you've worked on with Diamond Willow?

[51:05] I would say the ones that always come to mind are the ones where we were able to make people cry — but tears of joy. There've been acquisitions, dreams of owning a company, dreams of executing on a growth plan that couldn't get capital, saving people from distress and turnarounds and keeping their employees' jobs alive. Those are the ones that — when I'm so down and it's just so hard to stay motivated in this job — I'm like, we've got to go save these people and these jobs.

[51:39] I would say the one that resonates the most: we had a client in special loans, getting kicked out of a bank, relationship with the bank was a disaster, the wife didn't know she had guaranteed the debt, she was angry, the marriage was a disaster, professionally it was a disaster. We come in, we clean up, we just deflate the emotional volatility. Anyway, I come in as a trusted advisor in the middle. It was a person who owned four different businesses and had stretched too thin. We bring in someone to sell one. We restructure the operations. We restructure the comp plan. Everything's going according to plan.

[52:17] And then one day — it's a professional services healthcare company — the bank, knowing the plan, knowing we're deep into term sheets, we've signed a term sheet — one day, without notice to anyone, they cut off his point of sale systems and his bank account. So he's got patients trying to pay. They can't pay. He can't make payroll. And the bank just shut off his bank accounts.

[52:39] So he calls me and he's like, 'Grant, what's going on?' I'm like, 'I don't know — they didn't talk to me.' And obviously it's epically bad. It's been a fight — COVID happened in the middle. There's been a nine-month process. And I could hear it in his voice. I'm like, 'Okay, I'll call the bank, we'll find a solution.' And he says, 'Don't worry about it.' I was like, 'What?' And he says, 'Don't worry about it.' And he hangs up the phone. And I was like: he's going to go kill himself. He gave up. Just gave up. And I was like, no. Not on my watch.

[53:08] And I call his wife and I say, 'Listen — do you know who I am?' 'Yeah.' 'I need you to drive to the clinic. I need you to take his keys and drive him home. Do not let him get in his car. He's going to go kill himself.' And she's like, 'Seriously?' And I'm like, 'Yeah. And one more thing — just don't be a jerk for two days. I know we're in a battle here. Could you just be nice for two days and let him hang out with his daughters? He loves his family. If he kills himself, the bank gets the insurance money. You're screwed. So just be nice and let him hang out with his kids, and I'll figure it out over the weekend. Monday is going to be a new day.'

[54:06] Two hours later, she calls and she's like, 'You're right. He was going to go drive into a pole and kill himself.' Oh my god. So then all weekend — full crisis — trying to get bank accounts opened back up. And we ended up getting it to work by Monday and saving everything. His employees agreed not to get paid that day. Never thought I would have to save someone from killing themselves because a bank did something silly.

[54:33] So did that sort itself out? Is he back on his feet?

[54:41] Yes. Cliffhanger there — sorry! [laughter] We figured out the problems. Closed the financing. That was a long restructuring that went from special loans into a bank. We reorganized the comp structure with some of his business partners — he was just bad with money. Gets paid a whole bunch of money at year end and runs out of it by the end of the year. We brought in office managers to help him run the business. He was an amazing professional at what he did. And so yeah — it was rightsize his work life, rightsize the capital structure, fixed all the problems, controlled his access to his own cash, and literally saved his life — both literally and professionally.

[55:16] Wow. I think that's probably the top most interesting deal story so far on the podcast. I never got a thank you but didn't need one. It was just like — the amount of stress he was under, to just see that disappear. That was all the thanks we ever needed.

Chapter 29: Closing and Contact

[55:31] Grant, you've been fantastic and the audience has learned a ton. If someone wanted to get in touch with you regarding a potential deal, working with you, or just picking your brain — what's the best way to reach out?

[55:47] Yeah, my contact info is everywhere. I'm like one of the only people on LinkedIn that actually went to the contact info thing. My work email is there, my cell phone is there. Email me or call me.

[55:56] Grant, this has been fantastic. Thank you for making the time and sharing your knowledge here. Really appreciate everything you've shared with us.

[56:03] You too. Thank you so much for having me on.

Chapter 30: Podcast Wrap-Up

[56:10] Thank you for listening to the Inside Commercial Banking Podcast. I love creating this content and I hope you found it helpful. Can I ask you to do a quick favor? It would help if you could share this episode with your colleagues and like and subscribe to the podcast. The more exposure we can get on social media, the more guests we can attract. I hope this podcast can be the go-to resource for aspiring commercial bankers and middle market professionals looking to learn and grow. Be sure to check out the Finance Kid YouTube channel for more content on commercial banking and M&A in the middle market. And lastly, if you are based in Canada and you have a client that is interested in buying and/or selling companies, I would love to connect with them. Please reach out to me over LinkedIn and I'm more than happy to have a conversation.

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