When Mark Carlson put Minnesota Mailing Solutions on the block, he got two offers for around $3 million, which represented about four times his pre tax profit – a respectable price for a postage meter reseller turning over $4.5 million in revenue.
But Carlson wasn’t satisfied, and in this week’s episode you’ll hear the one simple tactic he used to get the acquirer to boost their offer by 50%.
When the time comes, do you want to sell your business externally, or internally to your employees or family members?
Once you decide, a little piece of you may always wonder how the other option would have played out. That’s why the story of Barry Wood is such an interesting case study. Wood is a door guy, who started M&I Door Systems in 1995, sold M&I in 1998, and then started another – virtually identical – door business in 2003, only to sell it in 2013.
Wood sold his first door business externally and his second internally, so his two exits allow us to see clearly the differences between these two types of sale with an as close to apples-to-apples comparison as possible. The pros and cons of selling externally rather than internally may surprise you.
Mike McCarron sold MSM Transportation to the Wheels Group for $18.6 million. After receiving the letter of intent (LOI) he signed it immediately. If McCarron had the opportunity to do it all again he’d handle this request differently. Listen now and find out why.
For most of its 17 years, Imaging Path was a successful IT services contractor that peaked at more than $16 million in sales.
Imaging Path founder and CEO Corey Tansom kept a close eye on his business until, a few years prior to its sale, Tansom went through a divorce that caused him to spend a lot of time away from the office. Tansom was distracted, costs ballooned and margins shrank. Imaging Path started losing about $500,000 a year.
The situation at Imaging Path got worse when Tansom’s bank decided to pull its financing. Tansom decided his best option was to sell his business – but who would buy a money-losing company?
Carl Silbersky sold his facial recognition software company Polar Rose to Apple in 2010 for a reported $29 million. The negotiation was relatively smooth but Steve Jobs would not budge on one deal point. Learn how one of the savviest deal-makers of our time approached his strategic acquisition.
Katherine Hague, co-founded ShopLocket in 2011 and sold her business two years later to PCH, a billion dollar Irish company.
Hague was a prodigious fundraiser in her two years from idea to exit. She sold 2% of her company to a friend before she had a product, another 10% to an incubator before selling an even bigger chunk in a million dollar funding round.
In our interview, Hague describes some of the landmines to avoid when raising outside capital and why she still has one regret about the sale of ShopLocket to PCH: listen now.
Dennis Hart sold his advertising agency, Apex Media, for 7.1 times EBITDA.
Selling for 7X sounds like a great exit but it disguises the complexity of the negotiations. Hart felt like he knew precisely how much EBITDA he generated until the buyer started questioning his math, adding back extra expenses, and driving down his EBITDA.
Hart walked away from the negotiating table twice. Eventually both parties were able to agree on a set of “add backs,” but this is a good reminder that, when it comes to selling your business, your EBITDA can be subjective.
How much would someone have to pay you to buy your business today? That’s the question Kris Jones was asked when billionaire Michael Rubin approached him about selling. Jones’ answer to Rubin’s question may surprise you.
Back in 2011, Nathan Latka started Heyo, a social media company that helped businesses advertise on Facebook. By 2016, Heyo had raised $2.5 million in seed and venture capital financing and, by all accounts, it was a growing and successful business.
Then Latka sent an unusual email that would ultimately garner him seven offers to buy his business – with the winning bid amounting to an incredible 11 times revenue. Listen to Latka describe the content of the email.
When John Bowen received a $37 million offer to buy his business, he thought it was too good to be true.
As it turns out, it was.
Bowen had received a non-binding letter of intent from a global bank, who made their bid with no actual intent to buy his business. Bowen came to believe their offer was a decoy designed to disguise their real objective: to understand Bowen’s strategy so they could compete better with him. Bowen got wise to their strategy and ended up selling his business to another buyer, Assante Wealth Management, for $25 million.
Bowen reveals his three strategies for evaluating the authenticity of an offer to buy your business during our interview.
John Maddox co-founded the digital agency Ten Fast Feet in the depths of the financial crisis. Despite his timing, Maddox was able to grow the business to $2.3 million in sales by 2013, when he got a call that would change his life forever.
If you have ever put a label on a sippy cup, chances are Julie Cole’s company, Mabels Labels, produced it. Cole and her three partners built Mabel’s Labels into a $10 million business providing labels for kids’ clothing and accessories before being acquired in early 2016 by C.C.L. Industries, the parent company of Avery Labels.
Cole and her partners were able to add hundreds of thousands of dollars to the price they got for their business using a negotiation technique called “normalization” – listen to find out how.
Natalie Susi started Bare Organic Mixers to supply low-cal cocktail mixers to bars and restaurants in southern California. Susi got her product into 300 locations before she decided to sell her company to a strategic acquirer in the organic foods industry. In order to maximize her take from the sale, Susi had to decide whether she was offering an acquirer the chance to buy her company or her product.
Aaron Houghton sold iContact in 2012 for $180 million. The first round of growth was financed by something called convertible debt, which Houghton recommends to any entrepreneur for its simplicity. To hear how Houghton parlayed an initial investment of $250,000 into a $180 million exit.
In eight years Ryan Born built Audio Micro, which began operations in his spare bedroom, into an Inc. 500 company. Born went on to sell his business for more than $20 million in 2014 – a deal that only happened because he had the foresight to put an expiry date on the "no shop” clause on his Letter of Intent.
Jeff Hoffman sold Competitive Technologies, a business intelligence company serving the travel industry, to American Express in a nine-figure exit. After the Letter of Intent (LOI) was signed, American Express proposed paying part of the acquisition in an earn-out, and you’ll never guess what Hoffman did next.
Most financial acquirers will arrive at an offer for your business by calculating the profit they expect you to make and deciding what they are willing to pay today, for your profit stream in the future. Because you are competing with lots of other places that the acquirer could invest their money, multiples are usually in the low to mid-single digits of your pre-tax profit.
A strategic acquisition is an entirely different animal.
A strategic acquirer will value your company based on how much more of their product they can sell, which is exactly what Business Objects (now SAP) did when they bought Nick Kellet’s business, Next Action Technologies, for more than eight times revenue.
Yvonne Tocquigny built her Austin-based advertising agency up over 35 years working with clients like Jeep, Dell, Hitachi, USAA and Caterpillar. Then in 2015, she got a call from New York wondering if she would consider selling. The problem was that her agency had become part of who she was. She had become something of a local celebrity and an inspiration for young female entrepreneurs in Austin. In selling, Tocquigny feared she would give up part of who she had become.
Trevor McKendrick had created the best-selling Spanish-language Bible app when he was approached about an acquisition offer. Salem’s original offer was 3.5x revenue but Trevor got them up to 5x with a combination of chutzpah and a knack for reading the fine print.
Stephan Spencer went to sell his consulting business in the late 1990s but buyers all wanted him to sign up for a long, painful, and risky earnout. Keen for a clean exit, Spencer took the business off the market and set out to make it less dependent on him personally. In the episode, he details the three unique strategies he pursued for withdrawing from the day-to-day operations of his business. By 2010, Spencer had the business running so independently that at one point he was able to take a six-month sabbatical. That’s when he knew he could sell without such a lengthy earnout. Ultimately, Spencer sold his business to Covario in 2010 for a combination of cash, stock and a six-month earnout—an earnout so short it's almost unheard of for a marketing services business sale.
Ian Schoen built Two Tree International, up to $4 million in revenue before he sold it in a multimillion dollar exit in 2015. Despite only working in the company for a handful of hours each week, Schoen was able to attract a number of buyers because he had created an operating manual employees could follow.
I loved watching David Price pitch for the Toronto Blue Jays in last year’s pennant race, so I was sad to see him sign a seven year, $217 million contract with The Boston Red Sox a few weeks back.
Of course, it wasn’t Price himself sitting across the negotiating table from the Red Sox brass. He was represented by his agent, Bo McKinnis. Price—like just about every high stakes professional athlete—has an agent in his corner because there are just too many things that can go wrong, too many egos with the potential to be bruised, and too many zeroes at stake to negotiate on your own behalf.
The same is true when you sell your business. When there are more zeroes involved than selling a home, you need someone representing your best interests. That’s a lesson Alexis Martin Neely found out the hard way when she tried to sell her company on her own. What started out as a promising relationship with a buyer ended up as a DIY disaster.
A shotgun deal is the most brutal form of capitalism. When you can’t stand your partner anymore, you offer them a price for their shares. They have two choices: accept your offer or buy you out for the same amount. Triggering a shotgun deal can have explosive results, as Kim Ades found when she offered to buy out her husband’s share of Upward Motion.
Usually a nine-figure exit takes more than a year to complete but when Blackberry found itself behind schedule on the launch of its tablet, RIM founder Mike Lazaridis saw Jakobsson’s business as a saviour. This led Blackberry to a $150 million acquisition in less than six weeks—that has to be the fastest nine-figure exit ever.
When you get an acquisition offer your eye will immediately go to the offer price. That’s only natural. But — there could be two other negotiating points that could have just as large an impact on your windfall of selling your business.
Jack Groot discovered all three when he went to sell JP’s Coffee Shop — a business that USA TODAY® voted one of the top 10 coffee houses in America.