Best Advice I've Received During Search
March 20, 2017
by a searcher in New York, NY, USA
Errors and omissions are my own. Credit for the good stuff is theirs.
Starting up
Invest as fast as possible in lead generation.
Don't get interns. Use a CRM/Email sender/Zapier configuration with folks on Upwork adding the emails and personalization from lists you can get using databases.
Don't waste time on brokered deals, training interns or anything like that.
The biggest obstacle will be convincing people you are legitimate once they respond, not flying for deals that will never happen, wasting time on auctions.
- unknown searcher
Paying
“If you are searching alone and are funding the search expenses by yourself, then the name, obtaining an EIN, and setting up the LLC is all you need to do on the legal front. Some law schools sponsor law clinics where aspiring lawyers will form your LLC for you at no cost as practice.
Ask about the price expectations of the seller as one of your follow-up questions on a CIM. The seller’s opening number will obviously be on the higher end of the negotiating range, but if it is 5x the EBITDA, you’ll know that the owner is more committed than if the broker tells you the number is 10x this figure. "
- Professor Yudkoff and Professor Rubin, Think Big, Buy Small
Searching
Avention, Hoovers(D&B), InfoUSA, DatabaseUSA, ReferenceUSA LinkedIn, Manta, Radius, ACG/TMA/SBIA, Trade Events/Groups, & Alumni/Affinity Groups. https://leadiq.io/ http://www.manta.com/
Competition
Most of the people reaching out to the owners of the types of businesses you want are lower mid-market PE funds that want the owner to stay on as CEO or they are investors who want to acquire a portion or half of the business.
- Tim Bovard, Search Fund Accelerator
Outreach
Nearly every industry has a trade association easily found on any major search engine. Contact them and see how you can obtain a mailing list from them. Many won’t sell one, but they will do a mailing for you. Or find out what that market segment’s SIC code is and you can then obtain a list from a list broker (you can find these online, as well).
Next, draft a letter. You’re far better off to have your CPA or attorney mail out the letter for you. Pay them for all of their stationery costs and postage, of course. You should even offer to do the complete manual work of printing, sorting, labeling, etc., at their office yourself to save money. The point is, a letter on their letterhead will yield far greater results.
- Richard Parker, DIOMO
Timeline to Close Deal
20 offers or 3 LOIs before purchase
LOI to close average is 5 months
Find businesses growing 5-15% - try not to buy a business growing faster than 35% per year
Customer concentration at 10%, no more
- Jim Sharpe, jimsteinsharpe.com
Cold Calling, Dealing with GateKeepers:
Mention that the call is confidential and you must speak with X person
Drop some info to the gatekeeper so he/she feels in the loop
Drop the name of a referral (only if you were referred)
Just come out and say it's a buyout proposal (often startles them)
Refer to the CEO/etc by their first name (as if you're acquainted)
-Peter Cartier, www.theprivateequiteer.com
Lending
Most banks have a prime and preferred rate. Getting the preferred rate may shave up to a quarter of one percent off the interest rate. To get the preferred rate, offer to do all of your personal and business banking there to help make your case.
-Garrett Sutton, How to Buy and Sell a Business
by Bakari Akil - www.graveshallcap.com
from Northwestern University in Los Gatos, CA, USA
I'm not saying don't try to create your own luck by searching off market. It can be done. However, I am skeptical a first time searcher with no track record and no readily available cash is going to convince an owner to sell a $1M+ asset they've poured their life into without a darn good idea of who else is out there and what they might come up with if given the opportunity to buy.
Not convinced? Another tack on this... I think it's much harder to create a systemic advantage around sourcing than it is around a searcher's unique approach to evaluating and operating. There are so many more dimensions of differentiation around the latter. Ultimately I think most people get into this because they think they'll create value by being a good operator, not by being a great searcher. If that's true, then why fight it? Take what the brokers are feeding, and figure out what you are advantaged to take on relative to the other buyers out there.... then do that. You'll save yourself at least a year, maybe two.
from University of Pennsylvania in San Francisco, CA, USA
"Outreach
Nearly every industry has a trade association easily found on any major search engine. Contact them and see how you can obtain a mailing list from them. Many won’t sell one, but they will do a mailing for you. Or find out what that market segment’s SIC code is and you can then obtain a list from a list broker (you can find these online, as well).
Next, draft a letter. You’re far better off to have your CPA or attorney mail out the letter for you. Pay them for all of their stationery costs and postage, of course. You should even offer to do the complete manual work of printing, sorting, labeling, etc., at their office yourself to save money. The point is, a letter on their letterhead will yield far greater results.
- Richard Parker, DIOMO"
Did you take the Diomo course or any others you recommend?
Thank you for a helpful post!