224 - Business Broker Reveals Which Businesses AI Can't Touch (Buy These Now) with Jackie Ossin Hirsch

0:00It's always a seller's market. It's been like that for 27 years, ever since I've been in this business. People are always surprised. It is always more buyers than sellers. It is always a seller's market. The difference between getting deals done and not getting deals done is your ability to problem solve. Every deal dies a couple of times. And if you can't figure out how to resurrect it, then you're going to lose the deal. What are you seeing coming onto the market? Anything that makes money. Really, that's what people are looking for. It's cash flow.

0:27I am excited to have my friend Jackie Hirsch on here because I wanted to get the lay of the land of where things currently stand in the M &A market. There's been some changes in the SBA and how you can buy businesses. And I thought, who better to talk to than Jackie? Last year, her company, Crown Atlantic, did$40 million in transactions. She's trending to do more than$50 million this year. So she sees a lot of deals happening. She's got a lot of deals. It's fantastic. Anyways, I think people like Jackie can give us insights and help us avoid boneheaded mistakes. You know, the stupid mistakes that end up costing us a million dollars.

1:03But what are you seeing right now? Like what kinds of companies are coming to market? People are endlessly moving here. I think, you know, we had the election. And so there's that trepidation. No matter who's elected, there's always like a pause. And then we have the tariff non-starter. And I told everybody, I'm like, this is going to be fine. and everybody's panicking and it's going to be fine, as I said. So they'll sort that all out, but it does cause a little bit of pause. And so now you'll see third and fourth quarters just be off the hook. Is that what you think? Usually first quarter, yeah, usually first quarter after an election is dicey.

1:37How do you see the big, beautiful bill and tariffs, or you just take one of them at a time? Do you think those are an accelerant to people buying small businesses? Do you think they're holding them back? I don't think it matters. I don't think it matters. I think the tariffs, look, people are always buying cashflow. There's going to be ups, there's going to be downs. Even in 2008 and 2010 and in 2020 during COVID, people were buying and selling businesses. So there's always an element that's buying and selling no matter what is going on. And Warren Buffett says, when there's blood in the water, there's even more deals happening.

2:10So I hear that tariffs are affecting certain things. And then when they realize it was fine, then it kind of goes back to normals versus inflation, where like you don't know where that wave is going. Right. So I don't feel like we're there. There was like a blip and everybody kind of accepted it and then kind of move forward. What's interesting is what I'm seeing in the M &A market right now is there's still a ton of demand. Huge. There's still more buyers than sellers. It's been like that for 27 years, ever since I've been in this business. Forever. Yes, it is. People are always surprised. It is always more buyers than sellers.

2:48It is always a seller's market. It's always a seller's market? Always a seller's market. It's like being a woman in Alaska. You can get a date all the time. It's like that. Is that inappropriate? I don't know. I mean, that's what it is. My understanding is like 70 % male, 30 % women. What? always get a date in Alaska. Yeah. That's my understanding. It's like a female on an oil rager. She has no shortage of dating options. Nope. It's a great analogy. It is. I'll tell you that. I'm just saying from what I'm reading, I would have thought because rates went higher, you would have less of these full cash offers because private equity pulled back.

3:29I mean, they did pull back, right? It wasn't, this isn't like made up. They did pull back, but Right. You're not necessarily seeing that at the deals at your price point, right? Because you're lower middle market, right? When I put a deal of a million EBIT on the market, it's strategics. It's private equity groups. It's individuals. It's first-time buyers. It's people who have bought 10 companies. It's everybody for these deals. I was looking nationally at the deal volume. It looks like we're down about 4 % quarter over quarter, 25 over 24. Or time on market is actually lengthening. It also looks like, according to this, some slight softening for multiples on the lower end.

4:09So we're talking about probably a million dollars or less of EBITDA businesses. Because of some changes in the SBA, there's been some hesitancy. That's the softening. Talk about these changes, these unprecedented changes that have never happened before. So when the changes came out, I just started laughing because what happened? It went back to the way things used to be. And I would say from 2016 on, they really maybe opened it up too much and they were getting too many defaults. And that's real. Not every SBA business is a winner. So they're getting a lot of defaults. So there's some different things.

4:44Like there's a survey business that I'm selling and the buyer has to have the license. Otherwise, SBA doesn't want to do the deal. And if the buyer doesn't have the license, they want the seller to go on the note. This is how it used to be. So it was hard to sell a trades business. It was hard to sell HVAC before 2016. It was hard to sell like all these other, you know, things that required this license. And you used to be able to get an HVAC business with probably like a million EBIT for like a 2X or a 3X. You used to be able to get that all day long. Let me try my best to paint the picture and then you tell me what I got wrong.

5:21The reason that it used to be easier, or excuse me, harder, and the reason it got easier is because there were some rule changes with the SBA. So the SBA, the Small Business Administration, they have this program called the 7A program that allows people to buy small businesses for as little as 5 % down, but typically 10 % down for that business. And then the SBA backs those loans. They historically have really low delinquency rates, et cetera. Well, right around 2016 and then 2020, they changed even more. They started changing the rules. It used to be that if a seller was going to stay on in the business in any capacity, they had to personally guarantee the business to the SBA.

5:58On top of that, there's this way around that you can get around 10 % down. And it's if you had the seller contribute equity, which is a seller note. Well, that note now has to be on full standby, which means if I'm buying a business for $5 million and the seller says, yes, I will do a seller note for$1 million. And the bank looks at that and says, okay, we're counting that as contributed equity, but you've got to wait to make note payments until 10 years from now, until the SBA is paid off. So it's now disincentivized these sellers to retain equity or do creative seller financing because they've either got to personally guarantee the loan or they've got to wait 10 years if the note's on full standby.

6:40And that's what it's been before. So people have to put down 20%. That's what it used to be. People put down 20%. And when you put down 20%, then it's different. Right. And if you put down 20%, you don't have to go through the SBA. You can go the traditional lending route. Obviously, they don't necessarily have as good of terms, right? So they're not necessarily going to be 10-year loans and they're not necessarily going to have the same interest rates. But if you have the cash to put 20 or 30 % down and then the assets that the bank can look at and say, I'm going to loan against those assets, you could go the traditional financing route.

7:10But the SBA just not only made it much easier to buy these businesses, you could be way more creative. And so these HVAC companies, like you're saying, these services businesses, the multiples just exploded because it was much easier for first time buyers to get in. Now there's kind of a pullback because these first time buyers aren't able to do that, which I find very interesting. It says here the loan default actually got estimated 5 % in 2024, which is a decade high for the SBA. Are you seeing any of that with your buyers in Florida? I'm not, but I mean, 5 % is not huge, right? It's something, but the taxpayer does have to pay that, right?

7:49That's the taxpayer that has to do that. And basically the SBA guarantee is an insurance policy to the bank. So the bank wants at least 15 % down, right? So if you put down 5 % and then the seller has a 10 % note, right? That's kind of the exposure. And then the rest would be paid to the bank. So the bank's never really out if there's a default. No, the bank's not out and they've started tightening their underwriting policies. Anyways, I agree. Are you seeing still the same amount of like first time entrepreneurship through acquisition? Always. It's the same amount. It's not more, it's not less.

8:25I mean, that's always been 90 % of the buyers that we deal with are first time buyers, even for larger deals. There's a lot of first time buyers and there's not endless investment banking jobs, where are all these MBAs going to go? There's all of these salespeople for software that's been going away and moving offshore too. So those jobs are going away. So there's a lot of six-figure jobs, like mid-six-figure jobs that are going away. And those people have to do something. So they're looking at businesses. What are popular right now? What are you seeing coming onto the market? Anything that makes money.

8:59I mean, anything, really. Anything that makes money. Really, That's what people are looking for. It's cash flow. Tell me about the survey company. So survey company, here's the issue, though. You have to have some knowledge and you have to have that license. And it's a very niche specialty that they do. So there's stuff like that. Is it like land survey? Is it, hey, we're going to go do a land survey? Or are they conducting survey? Okay. Yeah, yeah, land survey. But it's a specific niche in the construction industry, more specific than just land. And to your point, the reason those now are going to be harder to sell is because in the past, because they're licensed, I saw this in healthcare as well.

9:36You need that owner license to hang on the wall at least for a period of time while you have this transition. Maybe you are the buyer and you can hang your license, but most of the time, these first-time buyers, they don't have that yet. And so the way they've gotten around that is, hey, you leave your license on the wall, you can roll equity. Or hey, you leave your license on the wall, you can do a seller note. But now the SBA is requiring the personal guarantee. and it's like, no, I'm not willing to personally guarantee your loan. Right. The buyer always is personally guaranteeing. They're now asking the seller to personal guarantee.

10:05That's what I'm saying. Yeah. Yeah. Sorry. That's where it's gotten crazy. That's what I'm saying. If I'm the seller. It's somebody else guaranteeing your loan. Yeah. They're saying no. Exactly. If I'm the seller and I'm like, in the past, sure, I'll roll some equity and I don't have any personal guarantee anymore. That sounds great. And you can use my license. Now you want to use my license. Okay. But in order to do that, I've got to personally guarantee your loan. I'm not doing that. So the buyer is now in a much trickier situation of trying to figure out, okay, how do I now get somebody to come in and have that license?

10:35Yeah. Pretty intense. I want to hear some of the other cool businesses you've got going on. Land survey. I like that. Yeah. We have a underground site construction, you know, site utilities. So that one, yeah. Like 7 million EBITDA on that one. I have a materials testing business. 7 million EBITDA? Yeah, yeah. Yeah. Oh my gosh. No searchers buying that business unless they've got a proper search fund buying them. Maybe an independent sponsor. Maybe. But yeah, no, we have a whole list and we're going to do the list privately. So if you're not on that list, you won't see that. It's not going to be anywhere.

11:11What was the last business you saw that you're like, oh man, I want to buy this business. Oh God, that happens all the time. There's certain businesses and you just fall in love with them. I do love construction. and I love aerospace and manufacturing. Dude, so your love of business just like plays perfectly to you being a broker. Probably, yeah. You just get to nerd out and ADD out on every cool business that comes your way, which is amazing. Oh, on Sesame Street or Electric Company, whenever they'd show a manufacturing facility, I was like, how do I get there? How can I have that? You were like, can you tell me how to get to that manufacturing company?

11:47Yeah. And they were like, oh, not Sesame Street. Exactly, exactly. Can you tell me how to get, how to get to that manufacturing company my my favorite you know book as a kid was like what do people do all day and they had all these different jobs it was just fascinating to me i never got my kids say to me my kids always what do you do all day yeah yeah what oh well i tell i tell melina like what i do she knows what i do like she you know i i show her numbers and then you know she was making bracelets i was like okay let's do a pnl for this we did like a whole pnl and like attributed her labor cost to like each bracelet she's like oh i think i need to be charge him more.

12:22I'm like, that's right, sister. Charge. That is so, it was so funny. My oldest, Royce, he's 11 and we were talking and I don't like to tell my kids Republican good, Democrat good or Republican bad, Democrat bad. Right. Cause I want them to think for themselves and I don't really think in those binary choices. Right. So we were talking and he's, he's asking me some questions and he's like, dad, what do you think is a better Democrats or Republicans? I was like, well, okay. So we talked through it. I'm like, well, you know, Republicans tend to believe in limited government. They don't believe that the government should be the one who's consolidating decision-making power, money, and then making decisions.

13:02They think, oh, I can make my own decisions and help people in that way. Democrats think that's the reason for community. We should have a government that's actually helping people and makes it easier for people to afford things or have access to things, et cetera. So I'm like, so, you know, they have good arguments on both sides. I was like, what do you think Royce? He's like, I think, I think I'm a Republican because if you want to, if you want to improve your life, you just got to make good choices. And you know, you dad, you grew up poor and you just make good choices. So I just think that that's the way you should do it.

13:33I was like, okay. Oh no, I'm not kidding you. A week later, my younger son wins a raffle. It's this beautiful, like new racket. It's like$200 racket. And my oldest son is just like, I wanted a new tennis racket. That was the one I wanted. He just was like, woe is me, crying, sad. And he just starts asking, can I have a racket? Can I share that racket with you? Please, please. And finally, my eight-year-old is like, okay, we can share the racket. And so my son now is sharing this racket. And I see this whole interaction happen. I'm like, Royce, let's go to McDonald's real quick. He's like, oh, okay.

14:08Because I wanted to talk to him. I was like, I don't like the way that you got that racket. Like, what do you mean? I'm like, well, you just whined until you got your way. Well, I really wanted the racket. I was like, okay, well, do you remember last week when we were talking? And you said, I'm a Republican because I think people can just make good decisions and they can earn things if they do things the right way. I was like, you remember that? He's like, yeah. I was like, do you see how you contradicted your own logic? He's like, oh my gosh. Yeah. I'm like, why didn't you think, how could you earn extra money?

14:37Could you do a job? How do you find the racket? Could you start maybe a side business and then get some extra income and go and buy the racket yourself? He was like, yeah, I see what you're saying. I also understand more now. I think government should do more for people. And I was like, oh, gosh. No, okay. Now we're like. It's so hard. It's so funny when you're talking to your kids and they're learning through these things. I love the fact that you're doing P &Ls with your daughter on how she's making. You just have to do it. Yeah. I mean, it's really important to talk about money and explain how it all works.

15:06so okay i thought maybe we'd talk about real deals let's do it like have some real deal okay the real deal segment real deal segment because i'm an lp i also sell companies and then a bunch of my friends own businesses so like they call me with like business therapy type problems so when my when my buyers calls me and was like hey i think the seller's doing drugs and i was like okay tell me more you think it's like illegal drugs or legal drugs and so he said i i don't know but i heard something being chopped up in the background and something snorted oh i was like oh like real drugs oh shoot yeah this is a real concern and we're trying to figure out if the seller is doing legal or illegal drugs to know if they are in danger right and we're just trying to clean him up like i'm like let's clean him up and like get him some help and like support him because i think he's a good guy yeah this is like real deal like so that we can get this deal done it's a multi-million dollar company this is what brokers have to do this is what they have to do to get deals across the finish line was she talking about the seller that went to jail or no yeah yes real deal hello so i get a call i get a call and my friend who bought this company said, I realize the seller has been to jail.

16:31Is it okay? Give me an idea how big this company is. 15 million in sales. Like, not a small company. It's a real company. Yep. Real company, yeah. I think they, like, stole a car when they were in their 20s. Like, early 20s. Wait, wait, wait. So why did they care? Why did the buyer care that they had been arrested in their 20s? Yes, because they are having some issues with getting along with the seller, and they still need the seller for some functions of the business. You need to like meet them where they're at. They have lost it because that was their whole identity and they do not know what to do.

17:07So they are making a mess like a bull in a china shop. So he's like, okay, this is very interesting, Jackie. I did not think about this. And so he's like, okay, I will look at this. And like, since then there has been like peace. So like, he just kind of reformatted and tried to love this guy who has some problems and not be his friend, but just meet him where he's at. Sometimes that's all you have to do is just meet somebody where they're at as an individual. There's this book called Leadership and Self-Deception. It's written by this company, the Arbinger Institute. And they have a bunch of books out, but their whole thesis, their whole philosophy is like, you are the problem.

17:51So there's an issue, like you are the problem and you need to figure it out and you're probably doing something that's leading to these issues so if you can just change your mindset and reframe it you're probably also going to change the whole dynamic of the situation and i think you learn you tend to learn that in entrepreneurship the hard way you get in at first you're managing people and you're like well this guy's always like he's must be a terrible person or oh this guy is whatever doing x y and z and you've got to have this balance like you do have to move quickly but you also learn you can't throw the baby out with the bathwater when you're trying to close multi-million dollar deals.

18:24Like, do you want to be right or do you want to get the deal done? And sometimes those two things are in conflict. It doesn't matter how right you are. You're not going to get the deal done or you're not going to get it across the finish line. So I like this. You have a good mindset where you're like, okay, all right. They're chopping some stuff up. Okay. Okay. And it's white. It's white. Okay. That's not good. It's white. How do they act after they chop it up? Oh, they're manic high, manic high. Okay, lots of energy. Let's not assume it's what we think it is. Let's ask some questions. I mean, we're trying to solve it.

18:54We're trying to help him, right? We're trying to help this guy and figure it out. But Taylor Swift has that song and she says, it's me. Hi, I'm the problem. It's me. People know that they're the problem, but it is tricky. And I do wish that more was taught. And I don't know if it's because I'm a middle child as one of four kids. And I don't know if your middle children are like off doing their own thing and like just kind of sorting things out. But you have to like mediate and you've got to like sort it out and try and see it from the other side, which sometimes is very hard, especially when you're in it very hard.

19:26Hey, I don't know if you remember this, but when we started this podcast, we entered into a social contract. I would spend time, energy and money producing this podcast, interviewing these individuals and giving you insights into how to build, buy, start, grow your business. And you would like subscribe and leave me five-star review. Now out of that, we both get to talk to really cool people and hear really cool insights. We both get a ton of value, but I just want to help you keep your word. So would you do me a favor? We go leave a five-star review for me on Apple or Spotify. It would really help.

19:59And if you want, even share this with a friend. To me, that's the difference between getting deals done and not getting deals done is your ability to problem solve because every deal, maybe not every deal, maybe there's a deal out there that's just like, It was smooth sailing. But for the most part, every deal dies a couple of times. And if you can't figure out how to resurrect it, then you're going to lose the deal. Stuff comes up. Oh, shoot, I forgot to add that back. Oh, did I not tell you about this employee doing X, Y, and Z? And then the buyer is like, oh, that was material. Are you kidding me?

20:28You didn't disclose that before? Oh, my gosh. Deal's off. We're going to retrade this. So it's really, really difficult to get a deal done until you've learned that lesson of you've got to problem solve. Sam Rosati says all the time that a deal dies three times. But the deal I did with Sam only died one time. It only died once. That's how good you are. She put that as your slogan. I'm such a good broker. My deals only die once. It does. But sometimes they die and then they don't come back. like that deal I mentioned, like they don't come back. So sometimes they do die. I think that there's always, you know, blips and problems because it's just not, the deal is a living, breathing thing.

21:15And the people behind it are living, breathing things, which is why we have to like support that. And it's difficult. I tell people who are buying businesses for the first time, the most important thing, you can tell me I'm wrong. It's okay. I think the most important thing that you can do buying your first business is not do all the market analysis and all the due diligence and hire the best team to do your financial underwriting, blah, blah, blah. That's all table stakes. The most important thing is building a relationship with the seller. Because in my experience, every single deal gets to the point where are we going to close or we're not going to close.

21:51And if you can't call the seller and be like, hey, man, I just found out that actually you've had all these expenses on the side that kind of crushes our valuation. What should we do? If you guys can't have that conversation, you're done. And if after you close and you don't have a good relationship and you're like, oh, hey, this main, this key customer just left, this key employee is really being a pain in the butt. What can I do? You're just at a severe disadvantage. So I think building trust and having a good relationship with the seller is the most important thing. All the other things come second to it.

22:23I'm not saying they're not important. But if you could just optimize one thing, it's the relationship with that seller. You know, it's interesting. I was on a broker panel a couple of years ago and the Southern brokerage, their philosophy is that the buyer and seller shouldn't be friends and there should be like a little bit of animosity between them. I'm like, oh my God, no wonder all of their deals are like that. I started thinking like, oh my gosh, like I hear all these stories, but it's almost like they're creating that stage where I'm trying to always like foster friendship and like help everybody see each other in the best light and like how can we support them and like what can we do it's a whole different thing like i would say it is very frequent that my buyers and sellers are friends after the transition especially for sub 10 million dollar businesses probably you know sba style businesses the relationship is so important maybe a market it's less important you're just it's just a transaction but if you don't build a relationship with that seller then it's just going to be transactional.

23:22Both of you, you're trying to get it to pay for as little. They're trying to get as much as possible. And you're just always going to be at odds to get anybody to sort of acquiesce. There has to be the relationship there with them wanting to see you win and vice versa. So I just think building that relationship with the seller, I didn't know that. Like my first couple of deals that I did, I just didn't know that. It took time to understand that that was a real thing. But the best deals that I've done have been because I've had good relationships with the seller. It's hard. I mean, Nick, you're super likable.

23:52So I could see where they would really like you. And I think you have great people skills as far as how to work with them. And that makes a huge difference too. So I think a lot of times people won't get to multiple deals, right? So then you have the deal background. So it was easy for them to respect you even more as you went on and did more and more deals because I see you've done it. so i think the first deal for both buyer and seller a lot of times is very hard that is so funny because for many sellers it is their first deal yeah like and it's their baby it's their biggest yeah biggest deal ever so they're like well who is this person that wants to adopt my baby and pay me money for it like do they even know what they're doing sell something for like tens of millions of dollars like it is often their first deal really and it's their baby Yeah.