1530 – Buying Versus Starting a Business with Aquira’s Rich Coppage

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0:58with us right now rich coppage rich you are over acquisitions with acquira.com and that's acquira.com is a cq u i r a.com rich thank you so much for joining us thanks for having me josh appreciate it all right what does it and looking forward to this yes yes tell us what Acquira does. So Acquira at its heart is, I like to call it a more like a by-sided training, advisory, and investment firm kind of all rolled into one, meant to help what we call acquisition entrepreneurs acquire businesses. So think someone who's looking to acquire a small business, maybe they've come from corporate America or their current business owner, and they're looking to acquire a small business in mostly our specialty niche is around home services.

2:00Although we've looked at businesses kind of outside of that realm, but yeah, it doesn't venture too far away from that. So we like kind of the home services businesses. If you think about plumbing, HVAC, electrical contracting, roofing companies, but also all of the subs related to construction, and think pool construction installation, think mediation services, think septic tank companies, think framing companies, flooring companies that will manufacture flooring and countertops sell directly into the home. We've even looked at kind of infrastructure construction companies. We're starting to look at those as well.

2:47So we really like to focus on kind of what I would consider construction and trades type opportunities, companies with tradespeople. So those are really kind of our, that's really where we're really focused on. And we used to, back in the day before we were, we kind of transformed ourselves. We used to actually, as a firm, acquire digital companies and do digital roll-ups. So think e-commerce type opportunities. But we feel like in the space that we're in now, it's a little bit more recession resilient the businesses aren't you know subject to what we call platform risk you know where google or amazon could change the terms and conditions or their policies and put you out of business we feel like these businesses are going to are necessary regardless of whether the economy's going up or down and so we really like the space and we like to support entrepreneurs who are looking to acquire in that space and we also acquire through one of our divisions we call it snowball, we actually are actively acquiring businesses as well for our portfolio.

3:56Why is it such a good idea to buy an established business as opposed to just starting one from scratch? Well, I worked for a number of technology startups, by the way. So I understand all the work that goes into it. And yeah, you can have a huge pop at the end if you're establishing what I call it new frontier market, so to speak. But I think the biggest reason why you might want to buy a business versus trying to start one is it's so I won't say it's, it's a lot more simple process. I won't say it's easy, it's easier, but it's a simpler process, and that you're establishing a business that already has product market fit.

4:43Usually, the larger the business, the more solid management team and systems that you already have in place. So you really aren't, you're getting something that's established and it may be established in the community. Well, it would be established in the community as well, as opposed to trying to start something, trying to figure out if there's a good product market fit, investing a whole lot of money up front for no return and beginning. These businesses usually will come with a certain amount of cash flow. So if you're stepping out of the corporate world and you're looking to, you know, at least have some cash coming to you to support you and your family, this is a lot better option than trying to start up a business.

5:21Now, that's not to say I don't have anything against startup businesses. I mean, again, if you've got a world changing idea, you can come up with the next version of Facebook or Amazon and it's going to put them out of business. then by all means, there's going to be a venture capital firm that supports you. By all means, go for it. But I think there's very, the opportunities for those types of businesses are few and far between versus going out and buying a mom and pop operation that's just looking to switch hands. You know, maybe the owners are looking to retire. They've already got established, you know, established brand in the community.

5:57And for you to just kind of move in and take over that, I think is a lot, is a lot more stable of a proposition than trying to start up a business from scratch. Yeah. I mean, and we really didn't even talk about the risk because you just starting an HVAC company, you're going to have to like, it might work. It might not work. You know, you're going to have to hustle, hustle, hustle to get that book of business. And there are no guarantees you stepping into a market where, Hey, there are already established players out there that, you know, they don't mind boxing you out and you know you have to build a lot of relationships there's a premium uh that i think is um appropriate to pay for not having to deal with all of that stuff yes that's it that's it um and you're you're exactly right in that you know even like a startup hvac or roofing company in a particular market you're already dealing with players that have established their brand at some or another, or another, or they've established themselves within the community, which has kind of created that brand.

7:01And so for you to try to figure out exactly, okay, how much is it going to cost me to start my operations, to buy my trucks, to hire people, which is the, I think when you're looking at a lot of these smaller businesses, what we found is that one of the constraints to actually doing something either from, even from an established standpoint is trying to find enough bodies to put in the seats to actually execute on your strategy, whether it's a sales strategy or whatever type of growth strategy you're looking at. It's hard to find good people out there, qualified people. And so to try to do that from the get-go is going to be a lot more difficult than trying to do it from a business that's already got an established brand and employees that are already in place.

7:50The team, yes. These guys and gals, they've already been doing the work. As long as you don't tick them off, you're probably going to retain those folks. They already know how to run the company. How does the lending world work? I'm thinking of myself as a lender. And if someone says, hey, got a great idea, I'm going to start an HVAC company from scratch versus, hey, I'm going to buy an established HVAC company with an established book of business and a team like it's like as a bank, I would be much more likely to want to lend more money to that second scenario. What's your experience with that?

8:31Yeah, banks, you know, there's an old saying that banks will give you money when you don't need it. And then when you need it, you can't get it, you know. And so when you think about it from that perspective, banks don't like to, they don't lend to startups. I mean, generally, I mean, unless you're a player who's already built a startup from scratch and sold it for a ton of money, paid off the bank, maybe they'll take that risk on you. But as someone who may be coming in to buy a business, you know, doesn't have that startup cred, so to speak, banks are going to look a lot more favorably on, you know, at a current business that's already established versus a startup.

9:15And the reason being is because typically with an established business, you're already going to have cash flow, you know, support alone. you're probably going to have you know some of these businesses don't have a lot of assets but you're going to have probably have some assets in which they could use as collateral in the business and the business is just this stronger track history is going to be more attractive going to be more attractive to the bank just because you know they have to really deal with trying to underwrite a loan for the business and trying to understand you know the sustainability of that cash flow.

9:53If you've got a historical, you know, sustainability record versus not, they're going to feel a lot more comfortable lending against that type of an asset versus a starter. So it's a lot harder with startups. You're probably looking for friends and family money to get you off the beginning. Then you're going to a seed capital investor or angel investor. And then as the business starts to grow, you start to get, you know, maybe get a foothold with maybe a venture capital fund from that standpoint. But even then, I mean, the chances of actually getting venture capital money, I think out of 1 ,000 business plans that go to venture capitalists, maybe 1 % actually get funded.

10:35So, I mean, even then at that point, at that point, it's tougher. Yeah, and that bank money, I mean, it might come at a pretty significant cost because it's higher risk. How do, you know, when you're looking at acquiring a company, let's say it's a service-based business, like an HVAC or something. How are the valuations normally determined? How do the multiples look in order to get to that number? So let's say you have a company that, you know, they're pulling in$500 ,000 a year. Like how would, how would a typical, someone that's looking to exit say, well, the sales price is X. Yeah. So that can be a lot of, a lot of the times it depends on if they're working with a broker or not.

11:18So sometimes like in our, we have a proprietary sourcing team that looks for businesses that aren't like listed by a broker or anything like that. Right, yeah. Maybe these owners don't even know if they're willing to sell until you call them up. But sometimes they'll, you know, you'll talk to them and a business owner. And if they haven't been working with a broker, they already have a number in mind that they think their business is worth. And it may, it's usually some really high number that makes no sense. And it's just a number to get them comfortable. Hey, I'm a million dollars. You'll hear that term a lot, even though their business is generating$10 ,000 a year in income.

11:54Generally, if you go to a broker, most of them will tend to essentially look at your industry that you're in, and they'll compare it to sales or transactions that have been selling over the last year or so within that industry. and they'll try to find out kind of gauge what the multiples are based on that and then they'll apply probably an average multiple to your business to kind of give you an idea of what it's worth so for instance if you look at um i'll just say hvac opportunities that you know that have been selling or the income has been around or the ebita or sd and we can talk more about specific terms um if you want to get into that but let's just say the cash flow is about 500 thousand dollars a year typically those companies are selling at you know let's just say a three multiple of that so maybe a million and a half and that's kind of where a broker will start the pricing uh now obviously as you kind of get through the process with someone like for instance one of our you know any of our aes are looking at the business and we're kind of advising them on the acquisition of this business there's more that goes into the pricing than just kind of what the cash flow is it's a lot depends on kind of oh sure what kind of cash flow that is yeah is there a management place yeah recurring business you know you got to go and hunt and you know fish every day project versus recurring um you know if the owner has heavy involvement in the business you need to adjust for that um you know if the business um doesn't have you know there's some positives, like if the business doesn't have a marketing plan in place, but at the same time, the business has been producing cash, you know, you realize there's an opportunity there.

13:43So you may be willing to pay a little bit more for that business because you can actually grow it. But for the most part, it's really determined from a table of multiples for based on what businesses in that particular industry have been selling for. Man, you know, I'm just thinking, you know, for the right person, I mean, just working out the math in my head here, let's see, you are able to get like, say a 10 year SBA or something like that, you know, in a scenario, again, you're going to have to put your personal collateral in there for sure. And, you know, if you're willing to do that though, you know, let the SBA, you know, and your lender, you know, you know, you got 10, 15, whatever years to pay it off, but yet your cashflow in exceeds that.

14:22I mean, you're stepping into a profitable business. As long as you're willing to take the risk, you know what you're capable of. And, you know, it sounds like a great deal to me. Yeah. So yeah, you're, you're, I want to, so your website, acquira.com, what makes you different than say, you know, other brokers or, you know, maybe some sort of a directory of companies looking to buy and sell? Yeah. So first of all, we're not a broker. So that's the one distinguishing aspect. And we're not really a directory for people looking for a business. I think the way you have to look at us is almost, I come from an investment banking background prior to, well, way prior to coming to Acquira early in my career.

15:16So I almost like to say, you almost have to look at us as kind of almost like the small company version of an investment banking firm that's going to help you source the transaction. We'll train you on how to do that, but we'll also help you source a transaction. We'll help you bet the transaction or business that you're looking to buy. We'll help you craft offers for those businesses that tend to get accepted. And then from there, we'll help you through the due diligence process, in addition to potentially putting in equity on the deal as well to help you capitalize the deal. But then beyond that, we also have what we call post-acquisition integration, where we have a team that actually comes in.

16:02It's basically what we consider like a change management team. And I don't like people to think change management means you're going to come in and change all the management or all the employees from day one. That just means we're going to come in and help kind of help you systematize the operations of the business, put the SOPs in place, possibly hire the right, if there's not people inside the organization that can step into leadership roles, help you hire the right leadership, train them. So essentially put your business on solid foundation on the solid foundation so that it can grow or scale and grow.

16:38So we do all of that, unlike a broker who's basically just trying to sell a business and nothing wrong with that. That's their profession. They're trying to get their commissions. And we taught, we work with brokers all the time because our buyers are always looking at brokers, looking at BizBuySell or some of the other online broker sites to look for opportunities. And then obviously, we don't just list businesses. So we do, as I said, I alluded to, we have what I call an off-market sourcing team that's calling on about 3 ,000 businesses a week. And primarily their goal is to look for opportunities for us.

17:12But in the interim, there's very few opportunities for us to kind of buy outright so we tend to offer those to our partners within our program um so it's another source of deal flow but we're not brokering the transaction per se as a as a broker would be um from that standpoint so that's kind of what distinguishes us so we we like to have our our incentives are aligned with the aes that are within our system whether it's through capital partnership um and what we call our you know our ace team which is our operations partnership where we can help grow the business and or just through our partnership of helping more and more AE to successfully acquire these businesses, which then leads to potential exit opportunities to us down the road.

18:02So that's another benefit of working with us is that we can kind of put an exit plan in place with kind of, I'd never like to use the word guarantee, but with at least some where the AE has some modicum of understanding of what kind of maybe they might be able to exit out of this business with in terms of profits in maybe five years or so. So we offer those opportunities as well. So that's kind of, I think, our distinguishing characteristics. Yeah, excellent. A lot of good resources on your website as well, including this article I was just looking at about the best business sectors to buy in 2023.

18:40Aside from that, what's the next? So let's say someone's been listening to our conversation. Maybe they're already doing their due diligence on Acquire and they came across this podcast and now they're hearing us. Rich, what do they do next? So the next thing would be simply go out to our site and reach out to enter their information or basic information. And one of our reps will reach out to them and talk to them about the benefits of working with Acquire and what it is that we actually do and how we might be able to help them. And then from there, if they decide to move forward, there's a process internally where we'll onboard them into our under our different systems or what have you.

19:18And then they just get started. First thing they usually get started on is the acquisition training that we provide. We like to say it's an MBA for small business acquisition at a fraction of the cost of an actual MBA, because it's really based on the practical aspects of going out there and buying a business from sourcing all the way through due diligence. through post-acquisition diligence or post-acquisition operations. So it's a complete training system that they'll implement or go through. And then from there, as they get through the training, there'll be steps along the way for them to actually start pulling down actual businesses, analyzing them and bringing them internally to our investment committee, which then helps them do a deeper dive on the business.

20:03And then from there, if they want to acquire the business, then we can kind of take the next steps from there whether it's through helping them through the due diligence, crafting the LOIs, helping them on the financing side, line up financing, as well as potentially a potential equity investment from us. And then we kind of help carry them all the way through to the close for that. Very cool. Rich Coppedge, Director of M &A and Investor Relations at Acquira, the website Acquira.com. That's A-C-Q-U-I-R-A.com. Rich, it's been a wonderful conversation. I want to keep talking with you afterwards.

20:39Thank you so much for joining us. Thank you for having me, Josh. I appreciate it.

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