Sometimes Personalities Clash (And That's Okay)

I've been operating my companies now for five years and Searchfunder was a major aid to me in the process as I tried to learn how to acquire while actively trying to acquire. In that time my company has grown from about $400k in EBITDA to more than a million for the past couple of years. I don't consider myself hot stuff but I'm doing somethings right. Despite all that, I still try to buy other companies which is much more difficult today than it used to be. To me, this M&A stuff is the most important of the CEO skillsets. But sometimes the wind is in your sails and sometimes it is farting in your face. Happens to everyone alike and it's a rite of passage to the path we're on. Toward that end I wanted to share a story with you. My company makes and installs stage drapery and hardware. It's super niche and we are doing very well. But I want to do better. So I've tried to acquire lighting and sound businesses. I came across one in the Midwest that looked bad but I was willing to take a shot at it. The CIM suggested it'd been for sale for at least five years. The average EBITDA was a little over $400k for the last several years and the standard deviation of that EBITDA was 97% of the EBITDA itself. So it had huge swings year over year. The trend was downward also and it's a project based business with high customer concentration. This didn't scare me because I've seen what a company that does what we do can make when they add lighting and sound and I also figured it was still worth something despite those issues. I talked with the owner and broker and the owner was very friendly. I was upfront about these figures and the upper limits they set on what I could buy the company at. He mentioned that he was going to come to a place not to far from me in the next week. I thought that was great and nice of him. I messaged the broker and said that I want to make sure we are in general agreement about what the company is worth (ballpark). I offered the following: "What I’d offer is something like this: $400,000 as the firm transfers ownership and an earnout with 75% of earnings above $200,000 plus whatever capex for two years. So if it continues to do $1,000,000 in ebitda for two years, none of the money goes to income taxes, and capex for those two years is $75,000 each year, they’d get $400,000+$543,750+$543,750= $1,487,500. I’d take no salary from the business for those two years until they’re paid off from this fee." The "seller" cancelled the meeting, wouldn't talk to me, and sent me this counter: "$1,000,000 up front, plus a flat $875,000 per year for two years." You read that right. He wants to sell business that struggled to get $400,000 of EBITDA for $2,750,000. And that's if all the EBITDA checks out during due diligence. I sent a note to the seller explaining why the facts just won't permit that. I didn't attack the man. I just addressed the math. This was his reply: "Hi Bruce, There is nothing you are saying that I am not fully aware of, and I know the accounting processes behind it. However, this is how I look at it. Go ahead and start your own business in audio, video, lighting, and staging services and capitalize it. It would run you north of $6M to be where we are at today. Then hire in the talent to sell, account, produce, tech, and operate what we do. Then buy or lease a building in X locations to handle the business activity. You are a typical numbers man that expects the business to gain you wealth without working for it. I will sell to a viable company that can absorb our operations. Do remember I had the company sold twice previously to qualified buyers but ran into difficult situations. I am patient!!! You are not a qualified buyer since you cannot finance this appropriately and cannot do what we do. You are a novice at this and should not attempt to enter this marketplace since you would fail on your own. Thank you for your interest and I wish you the best in your ventures." I gave him an earful after that basically highlighting that my company is bigger than his and more consistently profitable, that his company wasn't sold 2x because he couldn't get it across the finish line, and that he's an emotionally delicate man who spends decades refusing to learn the straightforward lessons the market is trying to teach him. He shut up after that and I absolutely hope he's embarrassed because I said these things in front of his broker and CFO (and how do you have a CFO on $400k of EBITDA anyway?). My point in sharing this is this: there are people who hide their mismanagement behind entrepreneurship. They avoid hard truths about themselves. They have inflated egos and this corresponds to them having ridiculously inflated values of their companies. I promise you that leadership in running a small business highlights all of your worst qualities in glaring detail for everyone who follows you to see. It's an exercise in self discovery and growth like no other and I love it for that. Also it is fine for owners to have these sacred blinds spots about themselves and their companies. It's even fine for them to try to sell me on it. What's not okay is them having a meltdown when I say "I don't buy that for these reasons." Not everyone will get along. This guy and I get along like Sabertooth and Wolverine now. There's a saying "culture eats strategy for breakfast". You can have a roll up strategy but the people around you and you yourself affect the culture of the teams necessary to realize that otherwise simple goal. My advice: get to "no" quickly and move on.