Welcome to the business buying podcast where you find all the very best information on how to buy and sell businesses and become a dealmaker. In Business Buying Strategies podcast #9, Jonathan Jay from The Dealmaker’s Academy covers:
- Where serial dealmaker Mark Masiak sources his deals
- More key negotiating skills that you’ll need to become a successful dealmaker
- The guidelines you need to understand to raise finance in a hurry
Listen to find out:
- How Mark Masiak uses social media to source deals
- The factors Mark and his partner look at in any target company
- How to make an offer seem more appealing than it probably is
- How Mark has changed his mind-set to take on much bigger targets
- How to conduct your own due diligence in a few phone calls
- Why you should mystery shop your target company
- How to discover what’s really going on by talking to staff
- Why you should call the competitors of your target company
- Why your starting point in any negotiation should be to pay nothing
- Why your first offer should be very low
- What to say to a broker who wants proof of funds
- Why you must never mention deferred consideration to a business broker
- What to say to give the impression you are a multi-millionaire investor
- Why you must have a separate investment website
- How to create the right impression with business owners
- How to get financing in a hurry
- Why you should always be open and honest with financiers
- Why you should talk with a financier early in the acquisition process
- The information you need to provide to get funding for your acquisition
- Why business use plays an important role in a funder’s decision-making process
- Why a landlord’s waiver might have to be part of the funding criteria
- Why you need to understand the structure of the company you want to acquire
- Why you need to know who has shares and who has significant control of the business
Read The Transcript Here:
Hello and welcome. This is Jonathan Jay from the Dealmaker’s Academy, and welcome to Business Buying Strategies, the podcast where you find all the very best information on how to buy and sell businesses and become a deal maker.
Welcome to episode nine. This week, we’ll be hearing more from serial deal maker, Mark Masiak, we’ll hear how Mark sources his deals. We’ll also learn about what he would differently, knowing what he knows now. We’ll also be learning more of the key negotiating skills you’ll need as an effective deal maker, and we’ll be hearing more from Neil, our finance expert, discussing some of the guidelines you will need to understand when you’re looking to raise finance in a hurry. So if you’re ready, let’s get started.
So last week, we heard how serial deal maker, Mark Masiak, recovered from his first disastrous acquisition to putting together a group of eight businesses less than two years later. So how does Mark source his deals and what would he do differently, knowing what he knows now?
I’ve got a couple of them. So LinkedIn’s always very good. So myself and Dave, we just constantly post them on there. We do some on Twitter as well because other people share them, and then just say we’re after these sort of companies. We do it every now and then.
So Dave posted one the week before. I posted one last week and we’re currently working on, I think it’s six companies that are coming as a direct result of that. So that’s a good one and five of them are IT, or telecoms-based companies, there’s one which is a recruitment, but there’s also – I’ve just been having a CRM module written into Microsoft Dynamics, where we can go and start actually proactively looking for companies. So we’re looking for certain points in companies.
So we’ll go and look at their financials, we’ll look at the directors, what other companies they’re linked to as well, and we start recording all this information into the CRM app, as well as the directors of the companies and their ages.
So one of the hot points for that is when somebody gets quite old, not like you and I, when they get quite old and they’re wanting to retire, we can hit them with, ‘You can retire now.’ So one of the things that you can you do, the deal that I’ll be working on with this 71-year-old guy, so well rather than getting a little pot of cash which you’re going to burn through, why don’t I just give you some money each month? So it’s these sort of things.
That’s actually a nice phrase. Many people, if they’ve got money in their pocket, it’s spent but you can actually help them with almost like a retirement plan.
Yes, so they’ve got some value in the company they’ll get in there. They can maintain some relationships with their customers, even when they’re sat on a beach. You can do that anywhere these days. We can keep them around if we ever need them, but they’re no long shareholders. We’ve just got an agreement in there, saying we’re going to just pay you some money until this point in time.
So knowing what you know now, with the last year and a half of experience, what would you have done differently right at the start?
Probably been on your course, which I’m sure you’d love to hear [laughter].
Apart from that.
I’m constantly learning anyway, so I’ve started up running again just recently, I’ve been reading Richard Branson’s book and I’m about three quarters of the way through that book, and I found out he suffered exactly the same things I suffered as a business owner.
It was feast and famine from him, quite often, although his scale was a lot bigger and his aspirations were a lot bigger because his starting point is different. So in my life, my life was very working class. My idea of a good wage, at the time, was £20,000 a year.
So at 18, when I’m running one of the largest kitchens in Milton Keynes and I’m earning £25,000 a year, I’m up the night clubs, champagne all the time, living the life.
That’s my level, that’s the way I think. So what I’ve seen with Richard Branson, he went to school just round the corner from me in Stowe, and I know a lot of the guys who’ve been to Stowe as well, from my local rugby club, and their aspirations and just how they perceive things is very much higher.
So they, instead of talking about tens of thousands of pounds, they’re talking about millions of pounds. They’re thinking on a much bigger scale and so it’s that scale, and that’s what led me to actually start looking at Maplin.
So I’ve been taking a very close look at Maplin the last few days, which is a quarter of a billion turnover organisation, and I was looking at that at first, as a laugh, of a cheeky bid for £1 but looking at their assets, the assets once they were liquidated would have been about £9 million.
So I thought right, I can do this and if I put in a bid in with the administrators, because it’s already in administration, for £9 million, they should go for it. As I started getting a bit further down and looking at the properties that they’ve got, because they’ve got 126 stores around the UK, they were far too far gone on the leases being given up, especially the core sites.
So all the sites which had been really good had already basically gone, so I would have been left with the bad stuff and it’s the stores which drive the online business as well, so it probably just wasn’t worth it in the end.
So it’s like with Woolworths, you took away the stores and even though there was a Woolworths online, it never really happened.
Yes. So it’s that thing. So I just thought right, I’m changing my mind-set now about the scale of these things, so I’m no longer thinking I can flip these for a few hundred thousand really quickly.
I’m now thinking okay, I’m more interested in being able to float these. So I know, as well, if I’ve got that much liquidity – if you own a company, it’s not really liquidity. It’s only liquidity when it goes on the stock market and that’s when people start getting interested in it.
So I know that I can then go to the massive investment banks and if I need cash for anything, I can say look I’ve got these shares here and I’ll put that up in security and they’ll lend me multiple times of the value of my shares, so I can then go on and do multi-million pound deals. So that’s sort of my goal, rather than flipping. I will flip a few.
So you’re saying that, looking back and the journey hasn’t been a particularly long one, but you already realise that you could have been thinking bigger, right from the start.
Yes. I think the business that we’ve had, so the core business Infologic, that’s been quite key to be able to do all of these as well because we’ve got an office, we’ve got staff, we’ve got something we can move roles in. So when I was working in massive business and I used to do global rollouts for EDS, the big IT outsourcer, so when we won the BP contract, I was in charge of IT rollouts over the ten year contract, which was £2.5 billion worth, so I’m used to big numbers, they don’t scare me.
I’m used to being able to try and get tricky situations, like shipping equipment into Angola and places, where you’re not supposed to. So I’ve come up with all of these ideas.
So if you were to give everyone one piece of advice, based upon your experience, what would it be?
Just do it. Well this is where it’s going to take six hours. So we’ll go back to talking about me. Fourteen years ago I was working away, we’d only just started the company and I’d been in the office and it was midnight.
I was driving home, quite tired, had been slogging my guts out trying to get everything set up, and as I was driving up the A5, a sheep ran out in front of me and I swerved to try and avoid it, and the rear wheel of my car clipped the island in the middle of the road and I went sideways and started barrel-rolling down the road.
Then flipped up onto its nose, rolling down and then burst into flames with me in it. I died twice, got better, I was in a coma for six weeks and they said I probably wouldn’t be able to walk again, use my hands. I was on 100 per cent respirator, kidney failed, pancreas failed, so I’ve sort of been – well, I’ve been past death’s door, but I’ve been there and said right, okay, life’s too short. You’ve just got to go out there and do it.
Sometimes you look back and think, what would I have done differently? Most of the time, I would just get up and do something and just all the time, when I’m doing things now, it’s right, what do I need to do to move this forwards? That’s just the way I think now, so I don’t stop.
We’ll be hearing more from successful deal makers in future episodes. Now it’s time for part three of our series of lessons on the negotiation skills that every deal maker needs to have in order to purchase a business from its owner. So here are some more skills and tactics that will improve your negotiation position.
So knowledge is power, mystery shop them.
Call up the business that you’re thinking of buying and call them up several times, get other people to phone them up. Phone up different times of day, mornings, afternoons. Find out as much as you can about the business. Annoyingly, in every company there’s someone – annoying if it’s your company, they’ll tell a complete stranger everything about your business.
So are you guys busy at the moment? Oh no, we’re pretty quiet. In fact, they made three people redundant last month? Really? Did they? The owner never told me this. So mystery shop and let the staff tell you the truth.
Do they have any CCJs? Is there a cash flow problem?
Ask around, phone up some of their competitors and again mystery shop their competitors and say, ‘I’m interested in buying some of your tables and chairs and I’ve been looking at several companies and I came across this one on the internet, called ABC Limited, and they seem to have some really nice products. What do you know about them?’ and then just listen. So you’re doing your research, you’re doing your due diligence with just a few phone calls.
Now you can pay people lots of money to do due diligence and, really, if the deal’s big enough, you should be paying lots of money to do due diligence because it’s worth every penny but you can do a little bit of cursory, free due diligence yourself just by making some phone calls to the company that you are intending to acquire. Let’s start calling it by the right phrase, it’s the target company. So you can make a few phone calls to the target, but also to the target’s competitors as well and find out what’s going on. The worst that can happen, if you take a risk with a really cheeky offer, is they say no.
There is nothing worse than putting in an offer and then accepting immediately because you’ll just be thinking what? You came in too low. So be cheeky.
My starting point in any negotiation is I’m not going to pay anything. That’s my starting point and I move up from there. Rather than seeing a number or a number that’s suggested and think how can I get this number down, I start from zero and start moving up, so it’s a mind-set thing. Some brokers actually put a price next to the business on the website.
So big broker, Turner Butler, look the Sunday Times every Sunday. I think the Independent on a Wednesday, you’ll see a big ad with maybe 100, 150 businesses for sale, all with prices. Terrible negotiating error because no one will ever get that price. It will only ever be below.
Often with retail premises and pubs and bars and shops, you’ll see a price on the website and it sometimes says ‘Offers in the region of’, like they’re selling a property, although quite often there is a lease in these retail businesses. So the point I’m making is take a risk with a really low ball offer, simply because the worst that can happen is that the person says no.
Right, this is important. This is all about negotiating and strengthening your position, remember. You need to build your personal credibility. Some of you said, in the first session this morning, how you were being questioned by the broker, they asked for proof of funds.
I wouldn’t stand for that. Let me tell you how you get round it. You have a great LinkedIn profile and you might have a website. I would suggest if you do have a website, and we know that a very simple website can be built using one of these website builders, you can get a professional site done and if the money’s there, I’d do it because I think it’s worth it, and I would not answer these questions. I’d just point them to your website. I’m not having some 22-year-old ask me questions about my credibility.
I’m not having any of that and this comes down to the self-confidence and the mind-set and using the right language.
They are right to ask you, in fairness, because they want to establish whether you’re a time-waster or not and you’ll remember, I think we said last month with Helen from the Business Sale Report, she said the big agents, they get hundreds and hundreds of phone calls a week and they want to find out whether you are one of the serious ones or you are one of the time-wasters. I get that.
So you need to cut to the chase very quickly and you can say, ‘I realise that we’ve never done business before,’ that’s a nice phrase, ‘we’ve never done business before.’ It kind of implies that you might be in the future. ‘Never done business before, so what I’m going to do, I’m going to send you a quick email now with a link to our investment website and my LinkedIn profile so you know who you’re speaking to. Actually, I’m pressing the button right now, what’s your email address? Pressing the button right now, that will arrive while we’re talking.’
‘We are reviewing several opportunities and we came across the one that’s on your site, the reference number is XYZ, and this actually fits our investment criteria.’ What you must never do is imply anything about deferred consideration.
We’re going to buy this, using the company’s own money. Never, never, never, never because they want cash buyers.
The reason they want cash buyers is because they know that the numbers of the business that’s being sold don’t quite stack up, and the amount they’re going to pitch it at, no one, unless you are someone with a big chequebook, is going to buy that business. The impression that you must give is that you are a multi-millionaire entrepreneur. You might say, ‘We’ve recently exited some investments.’
I know for some of you, you have, so that’s really easy to say because you could even name – ‘We’ve recently exited some investments and we’re looking for new opportunities.’ So if you start speaking their language, you separate and distance yourself from the person who says, ‘I want to buy a business.
I’ve just been made redundant and I think I should buy a business because I went to the franchise show at the Excel and I thought it was a good idea to buy a business, so I’m just calling around.’ There’s a different quality of the conversation.
Personal credibility is built definitely by a strong LinkedIn profile, definitely on a face-to-face basis by business cards, and don’t forget that in that first meeting, within the first minute you are sliding your card across the table to every person on the other side. Don’t say, ‘Oh I’ve only brought two with me,’ and there’s four people there, ‘can you share?’
So you initiate the ritual, the meeting ritual, which is you slide the business card across the table to everyone there, and it’s really helpful when you get theirs back because I line them up in the order of the people sitting the other side because quite often I’m terrible with names and I can just say this person sitting on this end, that’s this person.
I can just look down, I can glance down and I can use their names, I can see who I’m talking to. Also, I can see the hierarchy of – sometimes the quiet guy at the end doesn’t say very much, is actually the decision-making, is actually in charge. So you can see by their job titles, what the hierarchy is.
So your personal credibility is really, really important. I think it comes down to the way you dress, the way you present yourself, the firm handshake, the looking them in the eye, all of these things add up to, we’re dealing with a professional.
Then of course, it’s got to be a professional that they like. So it’s not all cold and heartless, it’s a professional with a smile, but having your own website certainly sets you apart from everyone else.
We’ll be discussing more negotiating skills and tactics next week. At our Mastermind group last month, our finance expert, Neil, discussed some of the guidelines you will need to understand when you’re looking to raise finance in a hurry. Here’s what he had to say.
So I’ll go onto some of these guidelines. If you’re going to start a conversation with a funder, with – who’s in property? Who’s got a mortgage? You have to go through a lot of questions to get a mortgage, don’t you? You have to pretty much put blood on the line. We’re not quite as bad as that because, first of all, we can turn a deal round in less than 24 hours and pay it out. You can struggle to do that with a mortgage, but tell your broker, tell your funder everything because we will find out. You can tell us one thing, but we’ll go and check it and integrity in finance is everything.
If you’ve got a bit of a chequered history with your credit file, it’s not a problem, but it is if you turn round and go, ‘Oh no I’m perfect. I’ve got a 999 score,’ and they turn round and go, ‘Well actually you’ve got for CCJs and you owe 20 grand to someone.’ We do get idiots like that. So be open and honest, it makes this process smoother for us, it makes it smoother for you and a lot less painful.
Timings. If you’re looking at buying a business, chances are you’re not going to speak to the guy on the Monday, and I’m saying guy here, girls I’m sorry. You’re not going to speak to the guy on a Monday and then try and conclude a £500,000 deal the next day. You know what needs to be done within this.
So if you’re looking to raise money out of a business, start the conversation with a funder pretty early because what nobody wants to do is rush into a sizeable deal and make mistakes.
An asset purchase, that can be fairly simple. If you’re just going to go and buy a car for yourself, you can pretty much apply online and get the car delivered to you the next day. It’s a very simple process. They know the asset, they’ve got underwriting policies for individuals and for small businesses.
It’s a very simple process to go through. Refinance can take time because we want to value the equipment. So if it’s slightly unusual, it might take a little bit longer. If it’s a big asset list, it’s going to take longer. So if you know that all this work needs to be done in the background, give people time.
It doesn’t matter if it takes four, five, ten phone calls, but if you’re trying to get it done within a 48-hour period or you lose the deal, no funder’s going to work with you because they won’t be rushed into making a mistake that could leave them with a liability.
Invoice finance and factoring. This needs verification. So you get all the information, even if an offer is made and a deal is offered, they still need to ring their debtor book to say, ‘Do you deal with this customer? Do you get good service from this customer? Do you get decent invoicing?’ and they’ll look to be a verification.
Again, if you want to buy something on a Friday, don’t tell us on the Wednesday. Tell us, hopefully, a couple of weeks before to give us a chance to do the work.
It just makes it smoother, it makes it easier, it’s a lot less painful for everyone. If it’s less painful, then you’ll probably get a better service from the sales guy that you’re dealing with because he’s going to down the path of least resistance, yes? Any questions?
If you say to us, ‘I’m buying a company, they’re a woodworking company. Can you help me?’ We’re going to go, ‘Yes, maybe.’ So the more information that you can give us, the quicker and easier the process is.
This is the information that we need to know in order to make a decision. So the asset, what is it?
What does it do? What make is it? What’s the model? How old is it? What’s the usage? Usage might be miles on a vehicle. If it’s a packaging machine, it might be how many sacks of flour has it filled?
It might be hours on a forklift truck. We need to know this to be able to the valuation. So if you say to us it’s a Toyota, 12 tonne forklift truck, we’ll go great, we’ll go, ‘Great, what’s the make? What year is it?’ ‘Oh, I don’t know.’ Well we’re not going to lend you any money on it because we can’t assess the risk, but if you’re buying a business, it’ll be on the asset register and the business owner should be able to tell you this fairly quickly, assuming the forklift truck does actually exist. If it’s a piece of kit that’s being brought in, who’s the supplier? Are they a bona fide? If it’s a BMW main dealership, that’s fine.
If you’re buying an asset from another operator or another business, so if you’re buying coaches, you might buy from a coach dealership or you may buy from another coach operator. We need to know that because again it affects how we judge the lend and it might be that we say, yes we’re quite happy if you want to buy it, but we don’t know these people so we’re going to put a little addendum on there, like a little supply waiver to say that you’re buying it sold as seen so you can’t come back to us and say, ‘We bought a coach in good faith and it doesn’t work.’ You assigned [unclear word 0:24:41.7] which you didn’t buy from a bona fide dealer
Business use. Is it a legitimate business use? If you’re a coach operator and you’re buying a coach, it’s probably going to be used within your coach business. Simple, isn’t it? Makes sense?
If you’re a little engineering company and you work out of a little industrial unit in the middle of Shropshire, why would you be spending £80,000 on a luxury motorhome to go to France? If that’s the case, if that’s what you’re doing, you want to use it for personal use, we need to know because it will exclude some funders from that market. You won’t be able to get that sort of deal.
Other funders will go yes, that’s not an issue to us but they need to know the business use and the rationale for it because essentially what you’re doing is taking £80,000 out of the business. You’re putting stress on the cash flow. Is that business then going to prosper at the back end?
Landlord waivers. A business might operate from a leasehold property. If something was to go wrong with the deal, and things do wrong as we know, we might need to go in and get access to repossess that piece of kit.
If it’s bolted to the ground, if it’s a piece of machinery, if it’s bolted to the ground, we need a landlord’s waiver that is going to let us go in and get that piece of kit. So you need to be aware of what you’re buying as a business. Is it freehold? Is it leasehold? Who’s the freeholder and can we get a landlord’s waiver? That would be one of the conditions of the deal. So just something else to think about.
Company structure. What’s the legal entity? This is basic stuff now. So you’ve gone through your 14 questions, 15 questions. Legal entity. Is it sole trader, LLP, limited company, PLC? It’s basic stuff we need to know. Neil Curtis trading as Neil Curtis Limited. Limited companies, LLPs, PLICS, every funder can do searches for very quickly and a lot of this information will actually come up on that search through Experian or Red Flag or whoever the different ones use.
Directors’ full names, date of birth, and home addresses. You will not get finance without being searched yourself. They will always do a search of your home address because your business might be squeaky clean but you’ve got 15 or 16 CCJs for non-payment of your car finance. You’re not paying your utility bills, you’re not paying your water, et cetera, and that affects how funders will look at you as a risk.
Shareholding and persons of significant control. You may buy a business, be 100 per cent shareholder but not a director. Who has control of the business? In terms of finance, the shareholder, that’s who we’ll go to. Anybody with over 25 per cent shareholding will be looked at and if it’s over 51 per cent, they’ll be looked at extra hard because they have significant control of the business, even if they don’t work in it on a daily basis, monthly basis, even.
We’ll be hearing more from Neil in future episodes.
So that about wraps it up for this week. Remember to visit our website at www.thedealmakersacademy.com. Have a good week and see you next time.
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