Intro Speaker  00:00

From Los Angeles, this is the Echelon Radio Network

Brian Hemsworth  00:04

Hey, everybody, it’s Brian Hemsworth. And welcome to the Echelon Radio Podcast and today I have Adam McArthur in the studio with us. Hi, Adam. Thanks for coming in joining us today.

Adam McArthur  00:25

I’m super excited to be here.

Brian Hemsworth  00:27

We’re gonna have a little fun. I don’t have any very embarrassing things to talk to you about today. But we usually like to have a little bit of fun when we talk. So I, I’ve known you for a while. I’ve known you both in in social settings and in business settings. But I just went up to your LinkedIn. And I saw it says Adam McArthur CFA ASA ABV MAFF. That’s a whole lot of letters.

Adam McArthur  00:57

It’s a tunnel.

Brian Hemsworth  00:58

That’s probably the most letters I’ve seen. And that’s kind of impressive. Tell us what those things are. What’s it what is the CFA?

Adam McArthur  01:06

CFA is a Chartered financial analyst,

Brian Hemsworth  01:08

Chartered Financial Analysts and ASA?

Adam McArthur  01:10

An ASA is an Accredited Senior Appraiser.

Brian Hemsworth  01:13

Wow. ABV?

Adam McArthur  01:15

ABV is Accredited in Business Valuation.

Brian Hemsworth  01:18

And M A F F?

Adam McArthur  01:20

A master? No, I take that back. Again, I’m a Master Analyst in Financial Forensics.

Brian Hemsworth  01:26

Wow, I’m even I’m even more. I’ve been impressed with you for a while I’m even more impressed that you know what all those letters mean?

Adam McArthur  01:34

I know. And it’s sad that I may actually have a couple more that I don’t put on there, because it’s just a little redundant at this point.

Brian Hemsworth  01:40

So let’s talk about this a little bit. And we’ve known you for some time we’ve known you, working in the areas of valuations, you years ago, worked for an evaluation company. And then you sort of moved that into some accounting firms. But more recently, and this is really what I want to get to. Not that long ago, you launched Arch Canyon Partners. Tell us about Arch Canyon Partners tell us how that whole thing came about.

Adam McArthur  02:07

So when I found valuation, it’s sort of a unique career. Not a lot of people do it. There’s people who know us, but we’re not like a lawyer or an accountant. They’re not all over the place. And when I started, I didn’t even know that it was a career, I sort of stumbled into it. I was an investment banker, sort of was looking for something different, where I could use my financial analyst skills and sort of figure it out. And I got a call from these three guys in Calabasas that had a boutique firm, we started there. So I helped them, we grew that firm up sort of through a couple of different iterations. And then I got recruited out by a large accounting firm. And I was there for a number of years I helped build their practice, was fairly successful at that. And then another accounting firm plucked me out. And it was one of the things I love about it. I love getting out there and meeting people and learn about their business and seeing what they do and really sort of be hands on. And when I joined these accounting firms, I sort of became much more of an administrator and a rainmaker, which I love doing. But I also got too far away from the work. Yeah, and had my last firm, there was 125 partners. And I just got tired of whatever I wanted to do,

Brian Hemsworth  03:14

How do they even get a lunch order? With that many partners?

Adam McArthur  03:17

Well, I would just go on my own, which is what I decided to do anyway, right? I just I got sick of having partners and sort of running this practice for large Texas firm here in California and had different visions of how those practices should grow and how the firm should grow. And I sort of said, eff it, I’m going to start my own firm.

Brian Hemsworth  03:35

So so my brain is a little blurred from the time of COVID. How long? Have you been since you started Arch Canyon?

Adam McArthur  03:47

We started in October of really November of 2021. So right, so the middle of

Brian Hemsworth  03:52

right down the middle is when that when that happens. So you’ve been doing this now, a couple years,

Adam McArthur  03:56

two years about.

Brian Hemsworth  03:57

What have been the biggest revelations of you striking out on your own this way.

Adam McArthur  04:02

I should have done it all a long time. common theme, the other part is I sort of picked the wrong time to do it. Because it’s been my biggest challenge has been staffing. Yeah. And finding people and finding the right people and, you know, the market for you know, top notch accounting and finance people’s become very, very competitive. Yeah. And so that’s the the other revelation is how hard it is to recruit as a small firm. Yeah, that’s been a revelation. But the biggest one is, I’m sort of an idiot for not doing it sooner.

Brian Hemsworth  04:34

Yeah. You know, we’ve done a fair amount of work with accounting firms, and it struck me 10 or 15 years ago, when we would have firms say, you know, we want a new website, and we’d say, okay, so you want more clients, they go, No, we’re, we’re good on the clients. We need more people to work for us. That’s what we want the website to do. So that really has grown in the last 10 or 15 years this need especially in a market like Los Angeles, to recruit good people. I think during COVID, that had to have been kind of tough. Tell me how you’ve sort of come out of your first couple years, have you? Have you kind of found a zone a spot where you’re comfortable? Is it? And is that client size? Is it the type of work? How do you describe the work that you’re doing now,

Adam McArthur  05:23

The work, the work is hasn’t changed dramatically, I’m still doing valuations primarily for high net worth people. The largest chunk of my practice is for estate and gift tax. I do some litigation work. And I do a little bit of financial reporting work, but I’m sort of still trying to find that groove. You know, with, you know, I’ve hired some, some good people, and I’ve hired some not some good people and sort of switching that up and then trying to figure out, you know, while I ran practices for big firms, I ran the the sort of the technical side and the operational side of the practice, but I wasn’t getting the insurance and dealing with some of these other factors that now I’m sort of splitting my time dealing with. Yeah. And so that takes a little bit of a iteration, right to make sure I got the right people on the right. team around me. And so we’re still working through that. But it’s but it’s, we’re close.

Brian Hemsworth  06:16

And you mentioned the the main areas of valuation, but it really can be a lot of different things, do you find that the people that you work closely with, let’s say accountants, they kind of get it a lot of us on the outside, we don’t really think of valuation much until there’s a trigger event and oh, we need a loan, or we have to pay something and there needs to be a valuation or somebody gets a divorce, and there has to be a valuation. To the outside world, do people get what you do? Do they get the whole idea of valuation?

Adam McArthur  06:50

Not really. You know, I have to explain it a lot. And then, you know, it’s, I think people assume it’s like a house appraisal. And valuing a business is much, much different. It’s A. it’s more expensive, takes a lot more time, there’s a lot more nuances. There’s, you know, I have this and I trademark this phrase that there’s an art and a science to it. And so it’s sort of trying to convince people and getting them to understand that there’s more to it than just, you know, what, what the company does and how much revenue they make. Yeah, that it’s more complicated, nuanced endeavor.

Brian Hemsworth  07:24

What’s the average length of time of an engagement when you’re doing evaluation? Is that something you can do

Adam McArthur  07:30

45 to 60 days, okay, start to finish by the time I get the documents and have a chance to meet with the clients and get a report drafted and do the analysis, it’s sort of in that range.

Brian Hemsworth  07:41

What’s your favorite kind of valuation that you do.

Adam McArthur  07:46

I like doing things that other people don’t do. So one thing that separates me from a lot of the other people that do what I do is I will value some unique assets, you know, either intellectual property or music catalogs, or I valued some startup like liquor brands and weird types of intellectual property that that I enjoy that I enjoy kind of the challenge of, well, I do the bread and butter and you know, your Valley based industrial, you know, AMD manufacturing company that makes stuff that goes on planes, I love and thrive some of those weird, unique circumstances. So

Brian Hemsworth  08:22

So just so that we understand a bit more what you do when you’re doing these valuations, let’s say, the startup liquor brand or the music catalog, you’re really doing a combination. You said art and science before but you’re doing this combination of looking at the assets looking at current value of those assets, future value of those assets. But you’ve got to put a lot of thinking into that, right? It’s not. It’s not just two plus two equals four, when you’re doing valuation, right. There’s a lot of thinking, in your opinion that needs to go into that.

Adam McArthur  08:55

Yeah. And when we talk about, like, sort of like this bucket of assets, you know, from a business perspective, the the idea is that for to make money, right? And so when we look at those buckets of assets, one of the things we’re trying to do is figure out, how much money can they make from that? How much money you know, are they making will they make? What’s going to impact those cash flows? And what’s the risk of those cash flows? So there is there’s a lot of things that can go on in that enterprise. You know, we use music catalogs as an example. And I think one of my favorite, actually wasn’t a music catalog that we did, but we did a producer who had passed away, who produced a lot of in the 70s, these black there’s a genre for Blaxploitation films, right like shaft and those type of movies. And he didn’t make a ton of money going forward. His residuals had pretty, you know, I want to say 15 $20,000 a year for the most part, and then one of his, a sample from one of his movies, got put into a very popular rap song And he went from making, you know, $25,000 a year to close to half a million dollars for a number. Wow. And so it’s trying to cap like, and then he passed away while it was still making a lot of money. But we knew that’s going to end. And the IRS was sort of challenging the valuation and how do you how do you? How do you model that? How do you capture that? How do you incorporate something that was making very little money, had a big jump, and was sort of on the way down? It’s thinking through those sort of unique factors you wouldn’t think

Brian Hemsworth  10:30

about, I would actually think that, you know, the kind of blending things that you see things that, you know, blending that business in, would end up being actually quite fun. And there would be a lot of very interesting, I imagine no two valuations go the same way or very, very few are the same. So it’s, it’s new every time correct, are you? Okay, so one of the things that strikes me, I’m going to, I’m going to take a left turn in this Congress, right now, now that we have a good idea of, of kind of who you are and what you’re doing right now. One of the things that has impressed me over time with you, that I want to share with people is, I first knew you much more in social settings. And I think a lot of people in life have one area that we sort of see them come alive, right? You’re a funny guy. You’re a bright guy, You’re a funny guy. But in social settings, I always kind of went like, if you said, this is where, you know, I went to this networking event and Adam was there, your brain kind of goes, Oh, must have been fun, right? What really impresses me about you, and I don’t mean to put you on the spot this way. But when you talk business, you talk with an enthusiasm. When you are engaged in networking, you do that with an enthusiasm. And I’m also really impressed that with things like your family, you do that with enthusiasm. And it feels to me like you’ve got a pretty full life going with all this stuff. Right. So you’ve got a couple. Couple cents that just graduated. Right? So

Adam McArthur  12:08

I have three boys. I have twins that are 18. They graduated yesterday from high school, getting ready. They’re, they’re leaving on father’s day to go to Europe for three weeks. Oh, my goodness. And then they come back and then they go off to college. And then I have a younger one who’s 14 who graduated Middle School. So we’re getting him ready to take the next step

Brian Hemsworth  12:27

He graduated Middle School when the others graduated high school. Correct.

Adam McArthur  12:30

This has been a big week. Currently MacArthur house and MacArthur family has been busy this week. Oh, goodness, what

Brian Hemsworth  12:34

a fun week. And so tell us the two you said the two the two twins are heading off to college after their Europe trip. Where were they gone?

Adam McArthur  12:42

So one is going to Oregon. It’s going to be a duck. He’s going to hopefully play lacrosse. They’re nice and the younger. The younger the other twin is going to San Diego State.

Brian Hemsworth  12:50

Oh nice. Go Aztecs go. Aztecs love the Aztec. So tell me a little bit about you. Where were you born? Where’d you grow up?

Adam McArthur  13:00

So I grew up in Granada Hills was the your local boy local boy boy, born and raised in the valley. I started cotton went to college at UCSB for two and a half years. And then I transferred to Northridge where I met my wife who also grew up in Granada Hills, about two miles away from where I grew up. She was a year younger than me in middle school. But we didn’t know each other. She went to different high school

Brian Hemsworth  13:18

went to different high school. Right, but live nearby live nearby. You shared a lot.

Adam McArthur  13:23

Yeah, we did that and then grew up my dad was a judge. So sort of a different, not a different way to grow up, but just a unique factor. And I think that’s why bringing this back to work a little bit. I really enjoy doing the litigator jobs that I do and testifying. I keep it to a small portion of my practice purposely. But I spent my whole life testifying. Right, because I was always being cross examined by that guy. And so. So that was an interesting way to grow up, I think.

Brian Hemsworth  13:51

Gotcha. Tell me a little bit about the transition from being in college going to CSUN. And the career that you have now had, how did that arc go?

Adam McArthur  14:03

I always wanted to I always thought I wanted to be an investment banker. So when I graduated from Northridge, I was very lucky to get places and a job but a very high level investment bank that most people out of Northridge don’t go to that do you most people were from Harvard or Penn. The only reason I got a job because it was in the middle of the .com boom. I think they were having trouble hiring people. And the HR lady, I went to middle school with, oh goodness. So I kind of kind of backdoored that job. And I loved it. I loved getting in there figuring out the companies hated the hours. I didn’t necessarily do it for the money. I did it because I liked the work. And so while I was doing that, so I did that. And then I switched to a different area of investment banking. So the first couple years I worked for it was on the deal side, doing big high yield debt offerings and corporate mergers, like big, you know, multi million dollar multi billion dollar companies. And I left that and went to work for an equity research firm, also considered an investment bank, but I was like guy that says the stock is a buy the stock as a whole this stock is a sell. And I was doing that here in LA so work in New York hours. I just didn’t love it. It just wasn’t something that was missing. And then that’s how I literally stumbled upon this valuation from Calabasas how I ended up back in the valley and doing what I do.

Brian Hemsworth  15:22

But it sounds to me like those early jobs, whether you necessarily liked them or not, like them or not, there was a lot of learning that went on in those I mean, if you’re looking at stock that that creates a mindset of sort of looking at analyzing, kind of making judgment calls. As you’ve as you’ve moved into working with the different firms, have you found that the previous jobs have helped you to the next ones? Are you pathfinding as you go?

Adam McArthur  15:50

No, I think we have all been building blocks. And I look back, and I joked earlier when we when we started this, that I should have started my own firm A long time ago. But even working for those other accounting firms, I learned a lot, and I’m very glad I did it. One of the main reasons that we talked about, you know, family and having enthusiasm. When I, when I first went to a big accounting firm from this boutique valuation practice, it was because of family. You know, we had three partners at that firm that the small farm and we worked every single weekend, we worked a ton. And going to a big farm with a big staff gave me the ability to not work on the weekends and not miss little league games and not, and it was fantastic. And, you know, I made less money. I worked differently, switch sort of my, what I had to do for the jobs, but it ultimately gave me a chance to be with my family, which, which I think was phenomenal. So I wouldn’t I wouldn’t change that transition for anything.

Brian Hemsworth  16:43

So So kind of just getting back to now, your business now that we know not only what you do, but sort of who you are and where you came from. Who are your clients? Now? Are they typically accounting firms or the attorneys or do people just come to you when they know something’s coming up?

Adam McArthur  17:02

Very rarely is the the client themselves, the person coming to me, they’re usually referred to me either from estate planners, or accountants, sometimes litigation attorneys, transactional attorneys, but but the vast majority of, of my referrals come through litigation attorneys estate and gift tax or other CPAs.

Brian Hemsworth  17:24

So those are some of the triggers that we as people in the business community should be thinking of you, when we hear those triggers of state evaluations, that’s a perfect trigger for you correct? What are a few of the others that we maybe should listen for?

Adam McArthur  17:43

We do a lot in partnership dissolutions. So when x and x is suing their partner, we’ll do a lot of that. And the other thing that I do a lot of is some of these, oh, I need somebody to devalue this patent, or we’ve got this trademark issue, or we’re trying to transfer those. So anytime somebody says value or valuation, you should think of me Yeah, typically not for divorce. I don’t like doing divorce work. I do them on occasion for select clients. But yeah, for the most part, it’s, it’s, oh, my dad died, we’ve got this business, we got to figure out what to do with it. Things of that nature.

Brian Hemsworth  18:15

We, we’ve had similar circumstances where we’ll get a call from the attorney that says, Oh, I’ve got this client, and the two clients are breaking up. So we’re gonna have to split this thing up. And in our world, the question is, who gets the brand? Who gets the name in your world is really sort of where’s the value? And who’s, how is that going to get split up? Do you find that you mentioned before you like litigation, but not not enough to do it all the time? Correct? What is it about the litigation that you like?

Adam McArthur  18:51

Because a lot of my evaluations are sort of compliance based, you know, somebody dies, and while the lawyer may look at it counts me review it. And on occasion, the IRS will look at them. They’re not challenged. So I could put a whole bunch of sort of fluff in there. Nobody knows. Like, nobody knows if it’s right or wrong. And it’ll be challenges a lot. And yeah, and I enjoy that part of litigation I enjoy. Part of part of it, too, is when I do testify on the stand, I enjoy explaining the process to people, because normally clients don’t want to hear out, right, they’ll evaluate business, where’s the report? Here’s your check. We’ll talk to you later. But I enjoy explaining that I enjoy sort of the feedback and watching their face trying to see if they understand or don’t understand what I’m talking about. Yeah, so I enjoy that. And I don’t, I don’t want say enjoy the confrontation. But I do enjoy getting cross examined a lot.

Brian Hemsworth  19:42

So I need to ask the obligatory question that has really become hot in the last month or two and what’s probably going to be hot for at least a good chunk of the rest of our lives. Where is AI? In your work? Where are you seeing it? Is it creeping in? Is it flowing in Is it even an issue?

Adam McArthur  20:02

Ai scares me a little bit. I use it a lot. I play a lot with ChatGPT. And I’m using some Bard, which is Google’s version of it. And some of the other ones. I use it sort of for fun, I use it for other things. But it’ll definitely creep in. I’m not exactly sure how it’s going to work, because we talked a little bit about this art versus science, and you’re not going to be able to have a, you know, AI get on the stand and testify. Yeah. But you may be able to have it, you know, put together a somewhat coherent valuation of a brick and mortar business. That’s pretty normal. And you already sort of see that. I mean, there are computerized programs that people use. To do valuations, not totally AI driven, but sort of formulaic based. Yeah. So it’ll it’ll creep in exactly where it goes. I don’t know, I use it a lot for I’m changing my Excel models. And I get great tips from it, I use it, right to write an Excel macro, or formula does this. So, you know, because I was the vast program. And it’s amazing how great it does and things that I thought I knew how to do. It gives me better ways to do it.

Brian Hemsworth  21:11

Yeah. And Excel is one of those programs that I think we look at, and we say, Yeah, we were using 3% of what that can do that is a very robust, and I think I’ve heard a few people say that AI has actually helped them in the, in the use of the program like that for you. Well, I’ll just share this one real quick, you and I were at a networking event and the topic came up of AI. And I was very impressed that within about five minutes, you had pulled up two or three different. I was about to say bits of information wasn’t it’s a lot of information about whatever the topic was, we’re talking about. And I’ve had people say that the personal aspect is what’s going to help a lot of us that, you know, like you said, you’re not gonna be able to get somebody on the stand. But it might help us with a lot of the research that gets us to that point. But ultimately, the people that hire you, and I know you get hired back again, by accounting firms and law firms, they have to like what you do. In other words, you know, when when an accountant does taxes, they might do it? Well, they might not do it as well. But it’s it’s kind of a pattern. And I’m not meaning to cite it, but like you say there’s there’s patterns to what you do. But yours has that real blend of both business and I’ll say math and analytics that go in well, but also judgment calls on that. Is that something that AI can ever replace those judgment calls?

Adam McArthur  22:42

It may, I’ll give you an example. And I’m going to tie this back to Echelon. So for the trust and estates group, we did we put together a case study. And I don’t think we got through the whole thing at the last meeting, but at the neck. So we we put together a case study. And at the next meeting, we’re going to go through it and the people are going to talk about how they would handle certain aspects. And it was an estate planning like, you know, mom and dad died, they have this business, this real estate kind of goes through their whole life. And we’re asking the, the members of the the guests, we’re going to be in the room to kind of go through and say what they would do from their perspective. I asked ChatGPT to do the same thing. So we’re gonna compare the answers that ChatGPT came up with that’s awesome, versus what the people came up with. And it’s very well, we’ll see how it works. But it’ll, it’ll be fascinating to see how similar the real the real people’s answer is to the ChatGPT answers because a lot of it’s in areas like, you know, law on life insurance and things that I don’t deal with.

Brian Hemsworth  23:42

Gotcha. So just one one more sort of general question. Before we wrap up. That I want to know, you’re, you’re a pretty active guy. You’ve done a lot of things. I’ve heard a lot of the stories of vacations you’ve taken and trips to the desert and riding motorcycles and jet skis and, and lots of stuff with your kids. You got two of them leaving, right? They’re gonna be now they’ll be back. They’re not that far, but but they’re going to kind of be out of the house for a while. And you have one more who will be there for a couple more years. Is that going to change? What we’re going to hear about that you’re doing on the weekends? Do you have any quasi empty nest plans ahead of you?

Adam McArthur  24:24

Well, I think it’s definitely going to change, right? I mean, I doubt we’re still going to be going to the desert riding motorcycles on the weekends. I mean, we still for the next couple of years. Good. So our youngest really enjoys that. But as they get into high school as he gets in high school and gets more serious about sports, some of those more, you know, he’s a big mountain bike rider, he’s a big motorcycle rider. We’ll probably curtail some of that so he doesn’t get hurt because kids get hurt doing that. So we are going to change what we’re doing. We’re not quite sure. My wife and I you know, we like camping so we’ll probably end up buying a big motorhome and go, you know, play drive back and forth from San Diego to Oregon. Our kids bother them and hopefully they join my fraternity and I can go to fraternity parties again and relive my life through them.

Brian Hemsworth  25:07

Well, I might be able to help one of them out at San Diego State perfect if they want to join the best house down there,

Adam McArthur  25:13

Which is also my house. So I think we’re good with.

Brian Hemsworth  25:15

There you go. There we go. Adam, thanks so much for coming in. Really appreciate your spending the time thanks for letting us get to know what you do and about your company and a little bit of insight into who you are when you’re not working.

Adam McArthur  25:27

Awesome. Great. Thanks for having me. It’s fun.

Brian Hemsworth  25:28

Thanks.

Intro Speaker  25:37

Presented by Echelon Business Development. More than just networking, way more!