Selective Acquisition and Navigating Through Opportunities

0:00Steve Jobs said, one of the worst things that you can do is to drown in opportunity. Opportunity is good, but if there's too much opportunity, it creates paralysis, overwhelm, and you end up not doing anything. So we want to decide what type of business to acquire first.

0:22Okay, so now the next step is for us to take a look and say, okay, well, what is our acquisition criteria? you. So how do we determine with everything in the world out there available to us to acquire potentially, how do we narrow it down so that we're not just overwhelmed? Well, I've got your back here. I got some really cool tools that I've created to help you do that. So here we're going to talk about how can we source and analyze the deals that we want to acquire. So where we are is step three of the five-step plan. Now we've positioned ourself as an investor. We've understand, even if you haven't set it up yet, that a special purpose vehicle or SPV is going to be one of the most important and valuable things that you do as you start along this journey.

1:07And now we're talking about how do we find some deals, right? Okay. Well, the very first step to finding deals is to know what you're looking for. Okay. So the way that we know what we're looking for is we create our acquisition criteria. This tells us how to know when something comes our way, whether it's something we want to look into or not. If you don't have acquisition criteria, then you'll look at everything and you might find yourself with a wide array of businesses that don't go together or simply overwhelmed so much because there's so many opportunities that you never even get started.

1:41Steve Jobs said, one of the worst things that you can do is to drown in opportunity. Opportunity is good, but if there's too much opportunity, it creates paralysis, overwhelm, and you end up not doing anything. So we want to decide what type of business to acquire first. Now, there are several different types of businesses that are out there. I think one of the most important things that we can do as we start looking at what are we going to acquire, we start looking at our acquisition criteria as we say, let's look at data and see what the data says is maybe the best opportunity for us. We'll work on matching data to things that are personally interesting and fulfilling with you in a minute.

2:29But the very first place I like to start is with a big overview. Because if I can look at the data and the data gives me some information, and then I can layer over that the filter of things that I believe in, I feel good about, that I'm actually interested in or passionate about, then that creates kind of the ultimate acquisition criteria. So if we take a look here at this chart, the best industries for ROI, really, you can see that the biggest is healthcare and biotech, 25 % best industries for ROI. And then followed closely by business services at 19%, information technology at 16%, and then it gets into some more micro niches like financial services and manufacturing and stuff like that.

3:16So if you have an interest in healthcare and biotech, that is a very, very high return industry. It's not something that is particularly appealing to me because there are all kinds of rules in the United States where I do a lot of my acquiring. We have HIPAA requirements and things like that that can get you into trouble if you don't do things right. So I like to generally stay away from businesses that are heavily regulated. So I love business services. That category, business to business, it's a very good sweet spot. You're marketing not to individual consumers, but you're marketing to businesses.

3:53I like service businesses. I also like information technology. I love businesses and I love Infotech. And if I can combine the two, then that gets me a pretty big swath. That's 35 % of the companies that return the best. Uh, financial services. I, I, again, to me for, for my personal investing criteria, I stay away from financial services because they are regulated by the securities and exchange commission and all kinds of other entities that have initials that, uh, that generally I like to stay away from. manufacturing is good the challenge to me with and the reason that i think it's lower here with only six percent um the challenge is that when you're manufacturing you have very high typically capital costs so the machines and equipment that you need to own and maintain to create the things you're manufacturing are expensive you have inventories both in raw materials the ingredients or components that go into whatever you're making.

4:56And then you have to transform those things into finished goods that you can sell. And then you have to have labor, a bunch of people that are doing all that stuff for you and some carrying costs while the inventory sits, while you're acquiring the ingredients and the components making it and then it sits until it sells. So that creates a lot of expenses that you don't have in other businesses that aren't quite so intensive capitally and labor-wise. So for me personally, you'll see most of the deals that I like to do are information technology and business services. There are also wholesale distribution.

5:34That's kind of being a middle person. The challenge I have with those is that you are typically in an ever-squeezed margin situation because as a wholesaler distributor, you're acquiring your goods from someone else who's manufacturing them. So they've got to make a profit there. and you're then selling them to another party who's going to sell them to the ultimate end user. And so that person or that group is always gonna be squeezing you as well. And so it's a constant battle for margin compression and I just don't like to play there. So I'm not saying I don't have businesses that sit there, but generally like if I get my perfect world, which is what we're talking about for you here now, I would lean away from regulated industries.

6:14I would lean away from margin compressed industries. I would lean away from high capital cost, lower margin type industries. And then they've got materials and energy. That's a very specialized niche. So not one that I'm experienced with, but certainly some great opportunities. And then 16 % is other, which is kind of everything else. So everything that doesn't fall into this category. So there's no right or wrong thing for you here. This is just data for you to apply while you're thinking about what you might be interested in. The next thing to think about is multiples for businesses. So businesses typically sell for multiples of their profit.

6:52And profit is defined in the accounting world by these initials called EBITDA. E-B-I-T-D-A. And that stands for earnings before. Earnings before. So this is basically my sales minus my expenses. Before, those are my earnings. Before, and then the I is interest. So interest expense, taxes is the T, the D is depreciation, and A is amortization. Now, those are depreciation, amortization are accounting terms. But all you need to really know is that effectively, it's the operating profit of the company. Okay. And as we get deeper into the program, we'll talk more about EBITDA. But right now, I want you to know that that EBITDA basically stands for operating profit.

7:42And when businesses sell, one of the easiest ways for folks to figure out what they're going to sell for is to look at what other businesses have sold for and then say, if I divide the average sales price for a business in this category or this niche or this industry by its profit, I can come up with a multiple of profit that businesses typically sell for. And then I can apply that multiple to my business. Right. So that's what we're looking at here in this chart. This is median deal multiples by EBITDA and size of company. And the reason that I broke this out for you this way is I wanted you to see a few things.

8:22One, I wanted you to see that different companies in different industries sell for different multiples. And I'll give you some very detailed breakdowns on this when we get into the valuation stage of the program. But right now, that's a very good takeaway to take. And the next thing is to know that the size of the company absolutely matters in determining what the multiple is as well. The bigger the company, the larger the multiple. And here's why. Because a lot of private equity firms, family offices, investment bankers, strategic corporate departments that are buying companies and larger investors, well, they're typically not looking for tiny deals.

9:07And so because there are fewer companies that are earning more money, the number of those bigger companies is smaller and more of the people who are out there that have these funds are looking to acquire them. So SPACs, special purpose acquisition companies and public companies and investment bankers and venture capitalists and growth funds and private equity companies and individuals that are high net worth and family offices, all these thousands and thousands, tens of thousands, actually, of these buyers are competing for a very few companies that are typically doing over 10, 50, 100 million dollars a year in sales.

9:46So what you see in the chart now, if we kind of drill down into it, is that very first column of manufacturing. It's a multiple of four times earnings before interest profits, excuse me, of EBITDA. So remember, EBITDA is basically profits. So it's a multiple of four times profits, roughly, that a company that is doing between no money and a million dollars in profit. So you think about a million dollars in profit sounds like a lot. Well, what's cool is that manufacturing company that's just doing$999 ,000 in profit, that's going to sell for four times its profit. So let's say that profit, we're going to round up to a million.

10:26That profit's a million. It's going to sell for four times 1 million or$4 million. But if it was instead go all the way down to the bottom where it shows$50 million plus in EBITDA, you can see that that's 10. That's a 10. So that same company that was doing a million that was only worth four times its profit is now worth two and a half times more. It's worth 10 instead of four times profit. And so if it wouldn't qualify, obviously here, but per million, if we say per million in profit on that smaller company, you're going to get 4 million, but per million in profit on that bigger company that's doing 50 million or more, you're going to get 10 million.

11:09That's pretty cool, right? So you're going to get$4 million per million in profit when you go to sell a company that is smaller in the manufacturing space based on this chart, but$10 million instead of$4 million per million on a company that's bigger. That's kind of crazy. And you can see that that goes, typically, if you look across this, we've looked at several other, we've got construction and engineering, we've got consumer goods, wholesale, and several other categories here. And you can see that they go from a low of what's our lowest one, looks like 2.5 in the healthcare space, up to a high of, doesn't look like anything's higher than 10.

11:5210 in manufacturing, 10 in healthcare, so going from a 2.5 to a 10. Information technology is a 10. Financial services is a 10. And media and entertainment is a 10. So that's an EBITDA size between 3.3 and 7.5 times more that you get for the business when it is bigger. And I've broken it down so you can see that the first level, the first row under EBITDA, we're talking about businesses that are under a million, then a million to just under 5 million, 5 million to 10 million, 10 million to 25, 25 to 50, and then over 50. So this is a really cool thing to look at because it tells us the more that like, if we can get into a business that's smaller, it's going to sell for a significantly lower amount than if we can get into that business and either grow it or check this out.

12:43What if you just put five$10 million businesses together, right? What if you put five$10 million businesses together? Now you've taken it from 10 to 50. And on our chart here, let's say that you're going from a 6.3. to attend simply because you acquired those companies and smashed them together in what we call a roll-up and made them bigger. So that is what is cool about size. Now, there's another term in addition to EBITDA that I want to chat with you about. And so when we have a company that's professionally managed, one that means that you don't have to work in it, professionally managed means basically it's not owner operated.

13:24In those companies, we use this term called EBITDA. That's earnings before interest, taxes, depreciation, and amortization. That's how we define profit there. If it's an owner operated company, we have another term that we use and that's called SDE. And SDE stands for seller discretionary earnings. Okay. It's EBITDA, except we add back the things that the seller is doing that aren't necessarily operational expenses. So maybe the seller is paying themselves twice as much as we would have to pay a normal manager there, which they should, right? It's good for them. They can take more money. So maybe the normal manager there would cost us$100 ,000 a year, but the owner is paying themselves a salary of$300 ,000.

14:10That would mean we'd have$200 ,000 we would add to EBITDA in this company to come up with SDE because that's not an actual operating expense. We can replace that owner when he or she leaves with someone else and that person can be paid only a hundred thousand instead of 300 ,000. Maybe the seller takes two trips a year that the seller calls a retreat for her family and she takes everybody along with them and it's a half a million dollars a year of expenses in traveling the world and doing cool things. Well, that half million would get added back because that half million is not essential to running the company and so on and so forth.

14:46If there's babysitters or dog walkers or luxury cars or other things that aren't really necessary to operating the company and it earning what it's earning, then we add all that stuff back and we add that back to EBITDA and that gives us SDE. So when we're looking at SDE, remember that's seller discretionary earnings for 22, it was$50 ,000 in SDE has a multiple and these owner operated businesses typically of 1.0 to 1.25, then 75 ,000, it goes up a hundred, 200, 500, all the way up to a million where we go from 3.25 to 4.25. So the business value in both of these charts that I've shown you is significantly higher when the business gets bigger.

15:36That's the big takeaway there. Okay.

15:51Ever wonder how some people build real wealth through acquisitions while others just sit on the sidelines? Well, I'm here to tell you, it's not about luck. It's about having the right system. the right deals, and the right guidance. And that's exactly what we give you in the Epic Deal Fast Track. If you've been thinking about buying a business, but you keep getting stuck, whether it's finding the right deal, structuring the financing, or negotiating with sellers, you are not alone. Too many people waste months, even years, just thinking about acquiring a business while the real opportunities pass them by.

16:24The Epic Deal Fast Track is not another course. It's actually an implementation program, and it's designed to get you from the idea to the acquisition in just 16 weeks or less. We work with you one-on-one to help you find, fund, and close your first or next deal. And once you do, we're going to plug you into our elite Epic board community so that you can keep scaling through acquisitions. We install three powerful systems in your business. The first is the deal flow engine. So you always have high quality off-market deals coming to you. Number two, we give you our offer and funding system so that you can structure offers that get accepted and fund them creatively many times with no money out of your own pocket.

17:07And number three, our closing and integration system so that you don't just buy a business, you actually successfully run and scale it once you have acquired it. Plus, you'll have direct one-on-one support from an Epic Deal Advisor every step of the way. And that's people that have actually come up through the system and done these deals themselves. That's the only way to become an Epic Deal Advisor. And if you're serious about acquiring a business this year, don't just sit on the sidelines. Just text I'm in to 334-458-9034 and we'll get you in. So text I'm in to 334-458-9034. We'll get you in.

17:45No fluff, no wasted time, just real deal making from people that are actually out there doing deals right now. I'll see you there.