326 - What Are The Steps Anyway?

0:00Every so often, and it happens more than I would have thought, I'm asked what are the steps in business acquisition? So let's talk about that. And if you really want to understand them, I would encourage you to go over to BruceWhipple.com and get the Acquisition Advantage Bootcamp. But let's talk about them in summary so at least you understand what they are and then why they're important. So let's say you want to build an empire, if you will, multiple acquisitions. It's important that you have the right foundation in place. So what does that mean? Most of the time, this is going to be the first time you do something like this.

0:39You're not usually an expert in the industry. You haven't done acquisitions. You might not know what an income statement is and a balance sheet and what the difference is. I didn't when I first started. So to say you're green would be usually an understatement. So you want to surround yourself with the right tools that will let you do this with the highest possibility of success. So let's talk about those. So first you want to decide what industry you want. And go through that process. You're looking for how fragmented it is. Do you have some passionate reason that you want to work in that industry?

1:21Some experiences maybe in the past. Is the profit margin good enough to warrant you working and not being a not-for-profit charity? You know, those are fine, but that's not the intent of this. We want this to be profitable for you. So once you've done that and you've done your homework, and there's plenty of course material and or material elsewhere that will help you do that. Certainly my courses fall into that category. So you've picked an industry. But now again, remember you're green. So you want to surround yourself with a board which has the experience that you don't have. You want a chairman that has, or chairwoman, who has done acquisitions not in a financing way, or like a bank president or a PE guy, but actually in terms of they've done it and they've led a team or they are the one who did it for multiple acquisitions from kind of beginning to end.

2:26They have the whole gamut. Then you want to also get some industry experts. You want to get a CFO or quasi-CFO, is what I usually call it. Then a non-executive financial director and a non-executive legal director. And that's usually about what you need. You might need a COO, but that doesn't have to be a person who's on the board. Once you have that team, you want to get representation, and you want to do that on the success-oriented, discount-and-deferred basis that most PE firms use. And just don't use the word success or contingent when you talk to accounting firms. So those terms are typically up to 100 % for failed transactions and a premium for successful transactions.

3:20And I go through basically a math example to say how many failed transactions does the accounting firm or law firm get when they get it to an LOI and when it's got financing behind it. And that could be seller financing, or it could be banks you've talked to that said, yes, we will do this deal with you, assuming that we still want to look at it, but assuming you meet some criteria, DSCR, debt service coverage ratios, etc. Then you want to talk to banks, even if you want to do seller finance, to find out where they are loaning at, what their multiple of EBITDA is, what their comfort zone is. Will they accept seller equity as your equity?

4:06All those things are important. And then you want to begin to reach out and talk to prospects. Ideally, older owners that are still working the business would like to step away but don't want to do it immediately. And seller finance is certainly a possibility with them. You don't want to go after and do everything that the bots are doing. So brokers, you'll be competing against other people who want to buy that business potentially. So go after businesses which are not for sale. and think about how can I separate myself and my team can separate you oftentimes for the prospects that you're contacting.

4:52How am I different? And that goes to a question of understanding what's important in their mind. What do they want to accomplish, et cetera, et cetera, et cetera. So those are the steps. I hope that helps. Again, go over to BruceWhipple.com. Take a look at the Acquisition Advantage Boot Camp if that's what you want to do. And that also has me do a once-a-month live Q &A call where we answer questions. So it gives you access to me as well. So I hope that is helpful, and I hope that answers the question of what the steps are.