The Insightful Buyer
Fred is one of my favorite clients. His background includes banking and two startups, of financial products and services. For his startups he raised money, created a solid management team, and lifted the companies off the ground.
For his next great adventure in life, he decided to buy an established business—a mature, profitable, and fairly priced business.
Fred and I had known each other through the Bellevue Breakfast Rotary Club for years when he called to ask me to meet with him. Interesting as he didn’t really know what I do until others in the club kept telling him to talk with me.
To say Fred is thorough is an understatement. He is very detail oriented, while being extremely personable. He knew what he wanted, big picture-wise. However, he was smart enough to not micro-manage the type of business. If it met his overall criteria it didn’t matter what the product was. We looked at a company making water jet blasting parts, an audio-video products distributor, and a shop that made parts for gun trigger mechanisms.
His eventual acquisition was Spectra Labs, an environmental testing laboratory in Fife, WA. Fred definitely bought into the fact the buyer has to build a relationship with the seller, or there will be no deal. He and the seller, Gary, built rapport and got along fabulously.
The Deal
It took a few twists and turns, as most do. Including the following after we agreed on price, terms, and most conditions:
- Fred’s wife Gwen had a major skiing accident, requiring extensive surgery.
- Fred’s mom died suddenly, close to Gwen’s accident.
- Gary’s wife had a medical event.
- Gary took off to his place in Belize.
- Gary decided to save money and put his attorney on hold. Not understanding legalese, he felt Fred’s lawyer was trying to take advantage of him. After a few weeks of this, we convinced him to reengage his attorney, who told him nothing out of the ordinary was occurring.
Closing The Deal
Eventually, the deal closed, two to three months after the original closing date. During the process both sides made some concessions and were flexible, meaning they both wanted the deal to happen. As always, this is a necessary factor in getting the deal done.
Fred has done great with the business. He has continually set year-over-year sales records (for that month of the year). In 2015 he converted half of his storage space to labs and offices to accommodate the growth. But that’s just part of the story. Less than two years later he bought a second business!
The Thoughtful & Deliberate Buyer
Matthew is very deliberate. His analytical side comes out easily and while it slows him down on occasion he does impress others with his thoroughness (his banker especially liked this as everything he prepared was complete and done correctly). His background made him comfortable with blue-collar workers and heavy equipment (not common with many buyers). He was financially secure enough to do a long-term search without the worry of depleting his investment capital.
Our active searching was short but that doesn’t mean we got to a deal quickly. It took a while to determine our criteria. We took a measured approach to our search and once the proper target was identified we worked out a deal that was fair to both sides.
The Deal
Interestingly, the consultant working with the seller for the year prior to the sale (who contacted both Matthew and me about this business) went to church with Matthew. They saw each other regularly but it did not create any conflict during the course of the deal. The deal took time because there were items on the financial statements that needed to be proven in greater detail than normal and that took time.
The bank liked the deal because of the ample cash flow that made his debt coverage substantially more than their requirements and because working capital left in the business was equal to about 20% of the purchase price. Matthew had a good relationship with the seller and immediately bonded with the management team.
Closing The Deal
As suspected, the management team was much more capable than the seller believed and it proved that one of the biggest weaknesses the business had was the seller’s restrictive thinking and his manner of doing business (we’ve done it that way for years so we’re going to do it that way now). When that changed, the deal changed.
The Buyer Who Changed Focus
After looking at several larger possible acquisitions Bob lowered the size of his target company size range mid-search. Some might say he was intimidated or risk-averse. In reality, he was following my advice of, “Think small not big; if you’re so good at managing a business use your skills to grow it.” Bob was extremely particular but willing to look at things on the edge of his acceptable criteria. It sounds disharmonious but it let him see a lot of businesses.
At one point he became enamored with a micro-business that related to his former career. He dropped it when he realized that it would not have met his financial goals. Later he looked back from an outside view and wondered why he spent any time on it.
We adjusted his criteria and went a bit slower during the middle of the recession. An accountant had been talking to me for about a year about a company where the client died and the spouse was just coasting. Finally, she put us together, I immediately thought of Bob and he felt the business had potential. However, all that coasting had the company hit the wall just as we were reaching an agreement.
The Deal
One of the requirements of the purchase and sale agreement was that Bob had to be able to get a line of credit. At the time of signing no bank would issue one based on the current performance of the business. We waited and Bob proposed that the owner hire him to get the business profitable so a line of credit could be issued.
Closing The Deal
It took Bob seven months to do this and it was a win-win situation. Bob learned the business, turned it around before the sale, and purchased a profitable firm. The seller got a check at closing, recouped his investment in Bob, and avoided closing the doors. In his first year, Bob was profitable every month.
