Let’s Start in the Middle… Imagine you’ve worked for the better part of 20 years to make something big happen. But not just something big… A lifelong dream. Now you’re on the cusp of that. You’ve already signed the closing documents on a $6.5 million acquisition after months of grueling negotiations, reaching out to more than 40,000 people to put the deal together, and valued and evaluated the deal dozens, if not hundreds, of times in your custom-built Excel financial model to make sure everything is fine. The wire transfers have even already been initiated. All that’s left is to drive down to the business in South Florida and begin the transition and integration process. Or so you thought. As you’re driving down the interstate to “officially close” and begin the transition. You’ve just said goodbye to your daughters, knowing you’ll be living out of a suitcase for the next two to four weeks to ensure operations run smoothly at the new business hundreds of miles away from them and where you live every day. You’re cruising down the highway, music playing, only a few hours away from stepping into the new business—and the wealth—you’ve dreamed of since you were a kid. Then, your phone rings. It’s the current owner of the business. He casually mentions that he took $100,000 out of the business bank accounts over the last few days to “pay bills he’s owed.” His reasoning? He wanted to make sure the business starts out “even” for you, so you don’t have too much money to start with. Your heart sinks farther and farther the longer this conversation goes on. You’re in such disbelief, you can barely speak. So the owner keeps rambling, talking more and more about how this is all going to be okay. Nothing is wrong. Nothing bad happened. This is all okay and above board. He even says his lawyer approved this. Which, if true, is illegal. The contract 100% does not approve anything like this. Before you can even process the fact that he just raided the accounts, he demands a decision on whether this is okay. Right now. You can barely breathe, let alone speak. He promises it’s “only around a hundred grand.” He tells you not to worry because you have $300,000+ in accounts receivable hitting next month. You’ll be completely fine, he says. Nothing to worry about. Meanwhile, none of this is legal. None of it is morally right according to the contract you’d just signed. None of this is okay. And here is the absolute kicker: just days prior, this same owner forced a massive penalty clause into the agreement. He demanded that if you backed out for any reason after the sellers fulfilled their obligations, with only a few days remaining before closing, you and your investors would owe him $250,000. You and your lawyers thought this was a very strange demand at the time, because you’d just finished final negotiations and were prepared to sign the documents and close. But he was insistent that this was added to the language. It was a deal breaker. If you didn’t agree to this he would kill the deal right then and there. And now, he’s on the phone. He needs a decision right now. No hanging up. No talking to lawyers. You’re only an hour away from the business after driving all day to get there. He knew this; you told him your exact plans for the day. The contracts to buy the business are already signed. The $250,000 gun is pointed directly at your head if you fail to close. His trap is laid. What would you have done? - The immense pressure and stress of a lifelong dream hanging in the balance. - Investors expecting a closed deal. - The transition already in motion. - Key team members already met and positioned. - The wire transfers already initiated. - The contracts already signed. With all that hanging over your head, you make the call: you decide to close anyway. You’d built a massive margin of safety into the valuation. You’d seen the accounts receivable coming in, and you knew the capital that was supposed to be in the bank. Up to this point, the seller had been difficult during negotiations—mainly due to his lawyers screwing things up, or so you were told—but you took him at his word that it was only $100,000. That was a fatal mistake. He didn’t take $100,000. He drained $250,000. He took the Day 1 operating bank accounts down to almost zero. You’d deployed all your investor capital to buy the business, a fact you had previously shared with the owner. He knew you were relying on the capital in the bank and the AR to use as your working capital upon closing. With those funds illegally wiped out with zero warning, you’re now in deep shit on your very first day under your majority ownership. Unfortunately, this led to a cascade of terrible, forced decisions just to survive that we will get into in later posts. Worse, this was just the first glaring sign that the previous owner was a complete monster. The illegal cash grab quickly evolved into outright sabotage and bad-faith operations. He eventually threatened to ruin the business, steal employees and clients, and more, over the phone, in person, and via text messages over the next several months. Lesson 1: Don’t trust what people say. Trust their actions. I should have halted the transaction immediately the second he attempted to manipulate and pressure me. Yes, walking away might have cost my investors and me that $250,000 penalty. But that is a tiny fraction of the pain, capital, and destruction it cost in the future. Especially since what he did was against our contract we’d just signed. Up to that phone call, he seemed like a difficult but completely normal business owner. That single phone call, and his actions before and after it, revealed who he truly was: a monster who would lie, cheat, and sabotage to get what he wanted. It later escalated to such a severe point that my own lawyer eventually sat me down and advised me to handwrite my will, just in case this owner “came after me.” This warning from my lawyer stemmed from reasons I only learned after I bought the business. Lesson 2: Here’s a tip you won’t see anywhere else in the M&A space. Find out what the employees’ nickname for the previous owner is before you buy the company. Because their nickname may be something like the Puppet Master, as was the case here. If you want to continue real-world business lessons from the trenches, I plan on posting more real world stories like this from my experience if you like them and find them valuable.