Welcome to the podcast where you find all the very best information on how to acquire businesses and become a dealmaker. In Business Buying Strategies podcast #10, Jonathan Jay from The Dealmaker’s Academy covers how to acquire businesses including:
- How entrepreneur Paul Green left a career in PR and journalism and turned to business investment
- More key negotiating skills you will need to be an effective dealmaker
- The HR and people management issues that you may need to address when you acquire a business
Listen to find out:
- Why the optics market turned out to be a lemon for Paul Green
- The process Paul went through to create a profitable business
- Paul’s first business sale
- Paul’s experience of working with business brokers
- Why not advertising the fact the business is up for sale is a huge advantage
- The process business brokers use to find suitable buyers for a business
- Why you should ask a business broker for a global Non Disclosure Agreement
- The advantages of a global NDA
- Why you should delay sending your NDA back
- Why you should ask your accountant to write a proof of funding letter for you
- The caveats an accountant will include in your letter
- The people-related issues that can delay or scupper a business deal
- The reasons you might have to remove people from your target business
- The employee liability information you need to have before buying a business
- The consultation period you must keep to if you plan to exit more than 20 people
- What you need to know about TUPE(Transfer Undertaken for Protection of Employment, 2006)
- What you need to understand about an ETO(the Economic or Technical Organisational) reason and when it applies
- The process you need to follow when exiting people from your business
Read the transcript here:
Hello and welcome! This is Jonathan Jay from the Dealmaker’s Academy, welcome to business buying strategies, the podcast where you will find all the very best information on how to buy and sell businesses and become a dealmaker. Welcome to episode ten.
This week we’ll be talking with another business-buying entrepreneur Paul [?Green 0:00:23.1] and learn how he left a career in PR and journalism and turned to business investment. We will also be discussing more of the key negotiating skills you need as an effective dealmaker.
We’ll be starting a short series on the HR and people management issues that you may need to address when you take on a business acquisition.
Then, I’ll be introducing you to Kelly my HR specialist that I’ve used for many of my own acquisitions. If you’re ready, let’s get started!
This week we’re going to hear from another serial dealmaker, Paul Green, and learn about how he left a career in PR and journalism and turned to business investment.
For his first business sale, Paul explains why he decided to work with a broker and what that relationship involved. Paul, give us the background, the publicity background, the PR background and everything.
I started my life as a journalist and newspaper reporter and went into radio and I did that for ten years. Who runs their own business here, just by show of hands?
You know and understand the entrepreneurial seizure or you’ve read about it in the [unclear words 0:01:30.6] revisited. I had that. At the age of 29 and quit my £40,000-a-year job and started a bedroom business.
It was awesome for two years until I remembered holidays, time off, time with my wife, all that kind of stuff. I think it was about three years in when I met Jonathan, I would describe myself at the time as a business owner stuck in mediocrity. I’m sure there’s a parallel universe somewhere where that version of me is probably still sitting at a desk waiting for a stroke or a heart attack to take him out of that life.
I met Jonathan, and he helped to re-programme my brain into what was important, things like holidays, time off, systemising your business, all of that kind of stuff.
As Jonathan said, we ended up dumping the PR agency, which I wasn’t actually very good at, and we went more down the route of becoming a specialist marketing agency.
Through a process of elimination and opportunities and meeting some of the right people, I ended up with a business that was delivering specialist marketing and growth, if you like, consulting to opticians, and vets, and dentists. Have we got any opticians, vets, or dentists in the room here?
Awesome, I can talk so much more openly then! Those three sectors are very, very linked. They do different things to different species, but they’re all essentially the same business when you think about it.
We started off in optics which is a terrible, terrible market to work with.
The people themselves are lovely, but the market has been disseminated by one big company in particular, and the name of that company is?
Which is one of the best marketing – I’m just going to do all your work for you by the way, I’ll just carry on, you sit and have a coffee.
It’s one of the best marketing companies in the world and Specsavers, the billionaire owners, they deserve all of the rewards because they are truly a tremendous company, at marketing and at sales and owning their own supply chain. Optics, the money ran out of optics and we followed that money into veterinary.
Veterinary is a very, very exciting market. We made a lot of money in veterinary and then followed that into dentistry, and dentists are interesting people.
Sold that March 24th, 2016. It was about ten-to-eleven that it completed and that was the day before bank holiday, before Good Friday.
Jonathan had said to me a few months before, ‘You never forget your first sale.’ I remember sitting on the sofa and getting the texts from my solicitor saying, ‘Thank God, it’s all done. The money will be in your bank on Tuesday morning,’ because it was the bank holiday.
My wife, we had this special bottle of Prosecco that we’d been saving up.
We didn’t quite want to go down the champagne route. I was so exhausted when it went through but I woke up the next morning, the Good Friday of 2016, and I just felt this enormous weight off my shoulders. It was more the just having got through it, and having built up a business and got it systemised, and we got a good net profit, and great cash flow and all the things that a buyer wants and then actually having found the buyer.
It’s interesting now, a couple of years on, I guess this is what we’ll talk about is I don’t think I’ll feel that pressure when I sell the next business.
I’ve got various irons in the fire now, and I look back and think all that pressure, it was all that thing of got to do it, got to do it. I had it completely wrong in the way I was thinking about it, completely wrong in my head. It’s so wonderful the power of that hindsight to look back at that.
When you thought about selling, you presumably, I don’t know how you did this, did you go online and look for brokers, how did that process work?
So, I decided to sell it a year before, almost a year to the day before it sold. Can I name names, brokers?
I already have this morning.
You’ve heard of BCMS, then, obviously as Jonathan mentioned them this morning. They’re about an hour from here. I’d been to one of their seminars about two years before.
They’re pretty good at marketing. I rang up, it was a great phone call, I rang them up and said, ‘Hi, I want to sell my business.’ ‘Hang on, we’ll put you straight through!’ Just like that, I kid you not, I was on the phone to one of the partners within seconds!
He asked me some basic pre-qualifying questions, turnover, EBITDA, I didn’t really understand the acronym of EBITDA at the time, they then sent me off to the appropriate person. We arranged a meeting and all of that kind of stuff. He told me their fee up front as well. I think that was their final qualifying question, is, ‘You do know you’re going to have to give us X thousand to get you started.’
How much was that?
Well, I did a deal with them because they had a new division selling what they call light. You know when everyone is up for a deal? You taught me that years ago, everyone is open to a deal. They initially quoted £45,000 as the upfront fee which was a little out of my range.
That would have been pretty much half a month’s turnover, which was like, that’s a bit too far. Then, a success fee on top. I said, ‘Look, I’m not that client, perhaps I should go elsewhere?’ At which point the guy said, ‘Well, hang on, we have just launched a new division,’ which they, at the time, called light, and it’s got a new name now, and I can’t remember what it’s called. I think it’s the name of the building they’re in.
That was for what they classed as smaller businesses. I think the fee was around £10,000 for that. What you would pay, don’t quote me on that but it was around about £10,000.
What you were paying for upfront was research. I’ll tell you exactly what they did and whether or not I would use them again.
We signed the paperwork, did all the interviewing and whatsoever. The thing with BCMS, and there are other brokers like this is they don’t publicly put the business up for sale.
That has a massive advantage, because a) your competitors don’t know you’re up for sale, and b) neither do your staff. At this point the business was running really well. I’d got a fantastic work-life balance, it was highly systemised, everything was ticking along well. The key staff were all locked in.
There were two of my team I’d said that, we’re going to put it up for sale, but that no one else knew and I wanted to keep it like that. My accountant at the time, said to me, ‘If you put this up for sale, you’re going to see it in Dalton’s Weekly, next week, aren’t you?’ It wasn’t that kind of business, but his perception was it will go in Dalton’s Weekly, people will see it… It didn’t work out that way at all.
What BCMS did which is utterly copiable [sic], they essentially, they just did the basic thing of saying, ‘Who would buy a business like this? Who could do something with this business that I couldn’t if I continued as the owner?’ We did a three or four-hour brainstorming session.
We looked at all the companies that did the kind of thing that I did, so marketing within – Well, marketing generally, general companies, marketing within those three niches.
They then looked sideways and they said, ‘What about big accountancy firms? Or, big consulting firms?
Who wants access to the audience you’ve got?’ One of the assets that I had to sell was I had a database of 12,000 practice owners, vets, dentists and opticians who’d all opted into our marketing. It was all GDPR compliant, before GDPR was even agreed. We decided that, apart from the cash that was generated by the business, that was one of the assets of that business.
We started to think sideways about who would want access to that market?
What could they sell to that market that I couldn’t? We ended up with, and I forget the numbers but we had literally thousands of companies. They went into their database. They would say, for example, ‘An accountancy business turning over more than £2 million and up would come a thousand of those, and they would target those.
There was the marketing businesses. Then, they’d look within our sector. They wrote to all of our competitors apart from a few idiots that I didn’t want them to talk to.
They essentially built a sales funnel for the selling of the business. They sent out a whole series of letters. They followed those up with phone calls.
They started with this big bunch of people and they narrowed it down, narrowed the funnel down. I did, and I forget exactly how many now, it seemed to go on forever, but I did about 12 introductory meetings.
Some of them were fishing trips.
You knew when they were fishing trips because everyone was very keen, and asking lots of questions and writing everything down versus – I remember the first meeting with the company that actually went on to buy it where he was almost disinterested.
He was one of those that halfway through, he’d look at his phone and put it down.
You’re sitting there thinking, bloody hell, essentially that’s what the broker did.
Where BCMS can get away with charging £45,000 or £10,000 or whatever they charge is, they do a great, they call it a lot of research, because it’s a big marketing exercise to reach out to a whole bunch of people and say, ‘We’ve got this company, do you want to sign the MDA?
Do you want the full information memorandum?’ Then, they work it down to a series of meetings.
Then, off the back of those meetings we had three offers, two of which were not right, because they would have involved me going to work for someone.
Those of you who are business owners, you’ll know what’s the worst thing that could happen to you? It’s not death. It’s having to get a job, yes?
The thought of having to work for someone for two years is, no, that’s off the cards. Then, we got down to the offer that we accepted.
We’ll be hearing more from Paul next week. In recent weeks I’ve been teaching you some of the best negotiating tools and tactics that I’ve used myself when acquiring a business.
Here are some more skills and tactics that will improve your negotiating position. Having personal credibility allows you to establish yourself in the mind, in particular of a broker, but also of a seller. Another thing to ask for with a broker is a global NDA.
A global NDA is you sign one NDA, you don’t have to sign an individual NDA for each opportunity.
You want a global NDA. They probably don’t get asked that very often. Again, it sets you apart from everyone else. ‘Is it possible to sign a global NDA with a broker?’ So, you have access to all of their opportunities.
You don’t have to just do an individual NDA, Non-Disclosure Agreement, with each person, with each opportunity.
When they say, ‘Absolutely, we’ll send that to you,’ you say, ‘Okay, it might take a few days to return to you because I need to run it past our legal team. I need to run it past our legal team.’ Whether you do or not is irrelevant.
This is all about positioning yourself. This is about, I know some people don’t like this phrase, but I think, it’s actually quite a good phrase, it’s ‘Fake it until you make it.’ It’s putting your best foot forward. Why wouldn’t you? If you don’t do these things it just becomes a bit harder.
Doing these things makes it easier.
Here’s the key thing, if it’s written down it becomes legitimate.
I suggested to you last week that you go to your accountant and you ask them to write you a ‘To whom it may concern’ letter.
You might ask them to leave the date off so it becomes ageless, that says you are a serious acquirer and you are in a position to fund opportunities as they arise.
Now, I don’t know what your personal positions are. Maybe you’ve got equity in your home that is seven figures plus, that you can leverage. Maybe you’ve got personal or business funds that are seven, or eight figures, and you ask your accountant to put the letter in the strongest possible terms, and the key word is strongest, that they feel comfortable with. They will caveat it with, ‘To the best of our knowledge,’ and, ‘This information is given in good faith.’
They might say, ‘Based upon the latest accounts which were 2017…’ They will cover their backs because what they don’t want is someone…
I realise it’s not going to happen in the situations that we’re talking about, but what they’re trying to avoid is someone just saying, ‘Well, I saw this letter from your accountants, that’s why I invested the money and gave you the money.’ That is not what we’re trying to do here, but what we’re trying to do is establish a proof of funds stop, where we say, ‘Okay, that question is asked once.’ When you send over the link to your website, say, ‘I’m going to attach an accountant’s letter, to answer the question I’m sure you’re going to ask me about proof of funds.’ You stop it dead at its tracks, rather than, you’re the bunny in the headlights because you’re going to proof of funds, proof of funds.
As soon as you hesitate, you kill the authority that you’ve been building up.
The letter from your accountant really is saying, ‘Yes, Mr Jay, has access to considerable funds, which can be called upon in the event of an acquisition opportunity.’ The idea is that the 22-year-old at the brokers has been able to tick the box to say, ‘Yes, they’ve got proof of funds.’ Then, if they’ve got a wily seller who’s cottoned onto this, ‘We want to make sure that we’re not talking to complete timewasters,’ knows that there’s been some basic checks done on you.
You can do this buying properties as well. When you’re buying businesses, getting over this, you’ve got access to money is a – The fact that you’re not going to spend it is not really the point. The point is, at this stage, to get past the gatekeeper, it’s important to have that personal credibility.
We will focus on some more negotiating skills and tactics in future episodes. At our mastermind group last month, I introduced my audience to Kelly, my HR specialist that I have used for many of my own acquisitions. There are all sorts of people-related issues that can delay or even scupper a business acquisition and there are any number of problems you can face if you don’t treat people properly. Listen carefully to what she had to say.
F: I’ve been in HR management in some way, shape, or form since 2001, for my sins. I didn’t plan in going into HR, I fell into it. It was personnel back then, working in a number of organisations, very much in construction, engineering, I seemed to gravitate towards that area.
One of my first jobs actually was TUPE and a redundancy process within gas utilities. I got sent on a one-day course and was assumed I was an expert after that. Off I was sent to deal with 120 people coming in and 50 going out at the same time. I thought it was just holidays and sickness, actually, when I first fell into HR, but very quickly learnt that it wasn’t. Yes, I’ve been doing that since 2001.
Five years ago, I actually went out as a consultant, moved away from the large global and national organisations that I was working for.
I felt I could work for the smaller businesses because they have the same liabilities, potential consequences and challenges as the large organisations, but don’t necessarily have the budget to be able to employ somebody to manage that for them. That was, actually, five years ago on the 28th May, so five years this month, and helping people such as Jonathan in not just redundancies and getting rid of people, but actually helping businesses to… [Laughter] All right, it’s a majority of what I do, but [laughs]…
I want a smiling assassin. That’s what she is in my phone. Speed dial, smiling assassin!
F: Actually, what my objective is, is to help businesses grow. Usually the biggest asset is their people. Sometimes they can be their hardest asset to manage. It’s about helping them to grow their business through their people from the business perspective as opposed to…
Sometimes that involves getting rid of some people along the way as well.
F: Absolutely, yes, you know you’ve got to do that for the sake of the business if the business isn’t turning a profit, or it’s not where it needs to be, or it’s changing direction. There’s obviously lots of reasons as to why you have to remove people from the business.
Let’s say we buy a business where we know that we’re overstaffed, or we’ve got staff that aren’t performing, or staff that their role is redundant because we already have similar people in another business that we own. Talk us through a process using the least jargon as possible, but talk us through a process which would minimise our risk of being sued and would get us to the outcome that we want.
F: Obviously, there’s a redundancy process and there’s statutory rules that you have to follow. It does depend on the number of staff that they have and the number that you’re potentially going to be removing. You’ve got a minimum period of how long you have to take to implement the process.
You will have done your due diligence, beforehand, before buying this organisation and looking at the employee liability information, which is basically, what salary are they on? How long they’ve been there? What pensions do they get? Benefits things like that so that you would do your calculations beforehand to understand what this is going to cost you, potentially, either retaining these people or where you have to exit people. You’ve done that bit. You will then look at, if you’ve got to exit more than 20 people from the business then you have to do a 90-day consultation period.
Is it now 90 days?
F: It’s 90 days for if it’s exiting 20 people or more, yes. If it’s less than 20 then there’s no minimum period. That’s a key point.
The consultation can be say, one day? We can do the consultation right now, if there’s less than 20 people.
F: Yes, if you’ve got the ETO, the Economic or Technical Organisational reason as to why you’re doing this, which you will have, particularly if there’s a financial situation and you’ve got to make these changes very quickly then you could have the process completed very quickly.
Just repeat that, so it’s an Economic or Technical, or…
F: Technical, or an organisational…
…an organisational reason an, ETO.
F: An ETO.
You need an ETO, that’s your justification?
Great, good point.
F: Then, yes you can. One day, we would be talking about, but one day could potentially do that, but you might get some…
How many days do you need to make it look right?
F: I would say a week minimum.
You take over the business on a Monday morning, and by Friday, people can be going out the door.
F: Potentially, because where there’s a TUPE situation and you know that there will be redundancies. The redundancy can’t be because of the TUPE, just as a side quote. It has to be an ECO reason, not because you’ve taken this…
Let’s just go back one. Explain the TUPE process and what it is.
F: What it is? TUPE, or TUPE as some people like to call it, is Transfer Undertaken for Protection of Employment, 2006, and it was amended in 2014.
The whole idea is if there is a transfer of an economic entity and there’s people employed their terms of conditions transfer with that entity. It’s about protecting them, protecting their terms and conditions and their employment. However, it’s not always protected, if we’ve got an ETO reason as to not protect it.
If we’re buying assets, it still applies, doesn’t it?
Even if you buy the assets of the business and there are a dozen staff, those staff are transferred with the assets.
F: Yes, also if you’re contracting, you’ve applied for a contract to provide a particular service within an organisation, then, if you’re taking that service from another company then their staff and their terms and conditions will transfer to you.
If we go back to the big job that we did, I think I would have said to you, ‘We need to lose 75 people as quickly as possible.’ You sat down with each of those. You and Mike sat down with everyone, didn’t you?
What was the process? You had a pre-printed letter for them to sign. Remind me because I can’t recall the detail.
F: The first step is to write to everybody. The person who is selling the company is meant to inform their staff of what’s happening. I don’t think it actually happened on this occasion. We picked up the pieces and said, ‘By the way, we’ve bought this company,’ and as a result your employment will transfer. We retained the name at the beginning.
Although actually that came later. There was no transfer of the employment, just the shareholders changed.
F: Initially, yes.
Then, we did a transfer later, but the first-time round there was no need to notify. It was just new owners.
F: Just new owners and that was shareholders. If it’s just shares then TUPE doesn’t necessarily apply, although sometimes it does. TUPE is quite grey, in case you hadn’t noticed! Initially it was just shareholders, but then we moved onto, actually the business is moving, transferring and that’s when TUPE applied and we had to write to them to say, ‘By the way, this is what’s happening.’
If you’re not changing the terms of the contract, my recollection was it was a one-page letter. The letter was just handed out to everyone saying, ‘Your next pay slip is going to have this company at the top, but you’re being paid the same on the same contract, it’s just the rights of that contract are now transferred to this new entity.’ My recollection is that not one single person questioned it.
F: No, nobody questioned.
We’ll be hearing more from Kelly next week. That about wraps it up for this week.