Hello Freedom Seekers!
I wanted to do a quick recap of the Denver ETA meetup from last night. If you’re local to Denver…it’s an absolute must-attend every month. Adam Markley has been putting it on for 3+ years and it has grown to over 2,300 people strong. He has completed multiple acquisitions himself, now running a HoldCo model under Prox Capital Group and also backs entrepreneurs pursuing the ETA model via Prox Search Capital. However, I’d argue the most impressive thing that you won’t find on his LinkedIn is his selflessness and willingness to help. He is always willing to jump on a call, grab coffee, or lunch to talk things through…he could probably be charging $500-$1,000+ / hour for his expertise. Just an awesome guy and a great reflection of the willingness to help throughout this community.
Last night, Adam ran a panel with 2 sell-side brokers Owen Nieberg and Matt Carle with the headline theme being “How to Stand Out as a Buyer”…however, the conversation really evolved throughout the evening and was WILDLY insightful (which I personally find to be rare for panels).
If you don’t read anything, please read this quote I grabbed from last night:
“Your ETA wealth creation journey does not end on the day of close. It starts on the day of close.”
Very powerful, from none other than Adam ^. Let’s dive in.
How to Stand Out
Owen consistently referenced an active deal that he has going on that he remarked may be the highest interest deal he’s had to date. Here are the numbers he referenced:
Before the funnel…
Finding: Before this deal came to market, there were 12 bankers in the virtual data room (“VDR”) evaluating the deal and pre-qualifying it.
Takeaway: Go get pre-qualified with multiple banks to ensure you have full coverage as different banks have different preferences & underwriting guidelines. There’s no reason not to do this.
Top of the funnel…232 → 82
Finding: (Good) brokers are now tracking CIM consumption + Seller Interviews
Yep, you heard that right…the way Owen filtered down from the 232 NDAs to 82 calls (forcing back to back ~80 hour weeks on his end) was:
1/ Did the buyer scroll all the way down to the end of the CIM?
2/ Did the buyer watch the full seller interview?
If the answer to either of those questions was no, you are out of the process.
Takeaway: Everyone (and yes I mean everyone) has a Claude workflow that is expediting their pre-LOI diligence process; however, if you are going to pursue a deal…take the time to spend real, actual time with the materials and digest all the way through.
82 → 12 → 9
There were many incredible nuggets revealed throughout this process…
How to stand out in Seller calls & demonstrate you are a serious buyer:
The questions you are asking matter and reveal a ton about how much time you have spent with the materials and your subject matter expertise in the space…which (for the latter) directly reveals whether or not you have a real thesis for the related space
Being considerate of how you are asking Seller & broker to spend their time (e.g., follow up diligence requests)
Side Note: This is why I ALWAYS send out an overview deck that includes my pre-LOI process & illustrative timeline so it is extremely clear what I need and why. If you want this, shoot me an email.
NEVER SAY THE WORD BUY BOX AGAIN
This actually cracked me up, because I have always hated the term and have still never read any of the books (just done actual deals)…
Owen was deeply passionate about this…if you’re answer to the question “Why are you interested in acquiring this business?” is “Because it fits my buy box”…you are OUT son!
Be prepared to share your personal financial statements to demonstrate your liquidity and eligibility to buy the business. “If you can’t run your own house, you can’t run a bigger house.”
What sell-side brokers are looking for when they ask you “Why are you interested in acquiring this business?”
Extremely relevant experience and/or
Deep passion
It is a requirement to be able to talk past “it checking the boxes”…there must be qualitative & passionate reasoning included in your reason for pursuit.
Make yourself the extremely obvious solution to “that’s who I want to run this business”
9 → 3 → 1
Piggybacking off the point above, Owen specifically had an example of a camping business he sold where he asked every single buyer, “Do you camp?” Multiple prospective buyers didn’t even know how to spell REI. The offer he went with? That buyer responded with “I literally moved to CO to camp every single weekend.”
For the specific active deal referenced above, the Sellers accepted the 3rd lowest offer (by $400k), because they thought the Seller would provide a good home for their people.
This opened up a whole can of worms of incredible stories & fundamental principles to follow as a Buyer in general, but specifically from LOI → Sign & Close.
LOI → Sign & Close
1/ Principle: Buyer has the max point of leverage at LOI, the relationship will ONLY get strained from there. It is critical to invest massively in that relationship.
Example 1: An acquiror who was planning on rebranding the business post-close (which the Seller was aware of and aligned with), got (new) logoed golf balls pre-close to share with the Seller stating that “this is our brand.”
Example 2: Buyer conducted a “happy hour Friday” every single week from LOI → Close to spend time after-hours & in an informal manner. To note, most of these were conducted virtually too. I absolutely loved this idea.
2/ Principle: There will be a day that the owner walks out the door for the last time ever after showing up to that office for 30 years. You must be able to talk to this emotion, recognize what he/she has built, and appreciate the “family” dynamic of the business. Employees in a small business are not a number in an excel spreadsheet like they are in corporate, they are family members. Sellers will demand certainty that the Buyer they ultimately sell to will take care of their people.
Other Nuggets in No Particular Order
Be the kind of person that you would want to sell to
Have an actual, well-thought out thesis. Your criteria needs to go above and beyond boilerplate. @ geo-constrained Buyers, you were called out for the generalist approach. What makes a Seller have confidence in you as a future owner if your only criteria is i) $500k-$1m EBITDA, ii) recurring nature of business, iii) essential service, and/or iv) within 50-100 miles of [zip code]? Think about it.
Play the long game:
When you put in a ton of NDA submissions with no real common denominator, it leaves a trail and demonstrates to the broker that you don’t have a strong thesis and/or actually know what you’re doing.
Having a super specific thesis & being professional in your process will get you ahead of the curve down the road. “Pocket Deals” are a thing and if the broker knows you & your extremely specific thesis, you will get called on pre-market.
You should be buying the business where you have the highest post-close right to win due to your capability, skill set, and operating leverage to effectively i) run and ii) scale
Micro beats Macro
Owen had a great example of selling a distillery business that everyone scrutinized due to overall macro trends of Gen Z not drinking, etc. However, this business was crushing. Why? Well, because they make damn good whiskey and people buy it. Macro is important, but don’t let it overshadow the micro dynamics. Important to note that this goes both ways…macro could be great, but micro not so great.
#1 issue that Buyers make is undercapitalizing the business as you need
A buffer: You are going to screw up, no questions asked, you need a buffer to cushion these inevitable blunders
To invest $ for growth: growth is SO expensive, you need to have cash to fund it
Brokers will only advise Sellers to take a Seller note if its sole purpose is to bridge the gap between total equity + debt financing and asking price. Brokers do get commission on Seller notes (albeit delayed).
Deal flow from investor perspective is the same as prior years, but there are WAY more buyers. This was an interesting insight from Chris over at Dealbuff that I thought was worth sharing. Demonstrates that the # of deals hasn’t really changed overall, there are just WAY more people going after them.
Actually spend time thinking through growth potential. Owen had a fantastic example of a poster business he sold that was doing just over $100k in cash flow @ a ~2x multiple. That business at the time was nothing serious to pay attention to, but the growth potential was massive. Owen didn’t argue that you should be paying for growth, but perhaps do a quick double take on businesses that are small today but have a path to serious scale. Guy who ultimately acquired the biz, has executed the growth plan and is on track for close to 7-figure cash flow.
My Biggest Takeaway: The “deal” doesn’t really matter. What matters is everything after the deal. Don’t just focus on getting a deal done for “getting a deal done sake.” Work backwards off what a successful operation would look like with you as the owner/operator.
I hope this was helpful! Thanks again Adam, Owen & Matt!
Have any thoughts or questions?
Want me to focus on something specific in an upcoming issue?
Let me know! Reply to this email, shoot me a direct note at [email protected] or connect & DM me on LinkedIn. I’d love to connect with each and every one of you to help in your journey.
~Mitch
