Gray Matter Musings

Week 4 starts now….

So, you have found that perfect business for potential acquisition that meets the parameters of your target statement and seems to check all of the criteria. Now, it’s time to take things a step further as we look to begin the process of “making the deal”, where Deibel shares that we must be careful in how we analyze and navigate the entire deal process. Before we dive in the deep end of the deal process, I also want to share a key piece of advice regarding the search process direct from the author, which is that “every business is for sale” (Deibel, 2022a). In this regard, he means that if you see a business you might be interested in and are serious, don’t be afraid to make inquiries directly. In fact, Walker has successfully done so several times, with great results!

Now, deal making can be complex in general, as it brings “banks, brokers, sellers, and partners” together. However, the author shares some simple tips that can simplify this process, starting with “leverage” (Deibel, 2022a). While you can possibly afford to buy a business outright, leveraging SBA/lender money actually maximizes your ROI (and risk). The reality is that very few actually pay cash for a business and the amount of leverage you choose is dependent upon your situation and appetite for risk. But remember, closing these deals involves many costs such as taxes and other fees, so be sure you plan accordingly up front with qualified lenders to avoid a deal crashing at the last minute due to lack of funding.

This brings us to the criticality of finding the right lenders/bankers. As the author shares, “not all banks are created equal and while getting a loan from the right bank will be simple, getting a loan from the wrong bank when you have all the other pieces in place, can kill a deal” (Deibel, 2022a). Come prepared to these sessions with balance sheets, financials and tax returns for the past 3 years. Research SBA qualified lenders and banks near you and tilt the odds in your favor through preparation and diligence! Lawyers and CPA’s are next on the list, as “lawyers are the number one leading source of deals that don’t close” (Deibel, 2022a). Thus, be sure you are working with the right people who have your interests and goals in mind and not simply those with whom you have experience in the past.

You have now your pieces in place, so it’s time to start requesting additional information from brokers/owners. You will be asked to sign confidentiality agreements, which is normal and they should be respected. Once done, you are likely to be given an “offering of memorandum”, which will share intricate details of the company’s financial situation and standing. Have your team review the information, while formulating a checklist of questions. Now is not the time to panic and bail out, simply note any issues for discussion. While questions such as “why are you selling the business” might seem optimal, realize you are unlikely to get a straight answer and it will be up to you and your team to uncover the true business within the details. Above all else, remember that you are “buying for the future, but you are paying for the past” (Deibel, 2022a). The single most important rule in analyzing the deal is ensuring that with the purchase price in mind, the business can afford to pay for the business!

Stay tuned next week, as we dive deeper into the art of deciphering the numbers surrounding the business, making your offer, and closing the deal!



References:
Deibel, W. (2022a). Buy then build: How Acquisition Entrepreneurs Outsmart the Startup Game.