Case Study #22: From Side Hustle to Strategic Acquisition

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From Side Hustle to Strategic AcquisitionAnswering an Ad

In 2001 Joe Keeley was just a college student looking for a part-time job. He saw an ad for “hockey player wanted to watch kids, $10/hour.”

Keeley happened to be a hockey player, which wasn’t so unusual in Minnesota, and eventually, he was hired.

This turned into a three-year relationship in which he saw himself more like a big brother and mentor than a “nanny.”

Other families began to ask him for referrals to people he knew, and before he knew it, College Nannies, Sitters, and Tutors was born as a business.

The business model was a one-time fee for a matching of a family to a nanny or tutor, but that quickly changed, as families were unsure about how to legally pay those nannies and Joe saw the potential for recurring revenue.  

So the business quickly became a staffing company of sorts. Joe thought that once he’d done this right in one location, franchising would be a way to expand further.

In fact, at the time of sale, the company was very close to the 100 locations mark, a milestone not many franchising companies ever reach.  

But the leap forward that directly led to the acquisition of the company was software development. Joe saw early on that a major bottleneck for clients and even potential clients was scheduling. So he spent the money to develop software to solve that problem.  

By the time he’d built the software, the $34M the company was taking in annually had one large vendor that accounted for $10M of that revenue. That vendor was a Boston-based publicly-traded firm that specialized in child-care centers and often contracted with Joe’s company to find staff.

That $10M slice didn’t happen overnight. It developed over an eight-year period, during which Joe was often invited to the headquarters as an important vendor.  

He got to know the executive team and, when the software was launched, he began training sessions to help them integrate the software to help their own clients. Soon, everyone around the table realized an acquisition might make the most sense.

Deal

It took 11 months for diligence and closing, mostly because, as Joe noted, a public company needs specialized documents that aren’t necessarily needed when a private individual or company does an acquisition.  

If he had to do it all over again, he says he would have found out what those documents were and had them constantly updated in some kind of file. He’d always planned to sell the company, but when it came time for the exit, they asked, and he agreed, to stay on and keep building.  

He appreciated the ability to grow, but “with someone else’s balance sheet.”

The terms of the deal weren’t publicly disclosed. Joe was able to take a portion of the payout up front. He’s currently finishing a three-year earnout, but also plans to stay at the new company long-term.

Key Lessons

Joe knew from the start, once he moved from a side gig to a real business, that he wanted to build a company to sell. So he made sure his books were very clean, insisting on an annual audit for all of his franchisees.

Joe was also unafraid to invest where he saw a major problem. While the investment paid off for his business operations, it also was what made a strategic acquisition so sensible for the buyer.

Most importantly, Joe stuck to his brand.  

More than once he dealt with marketing companies who said that “College” was a bad adjective for the brand. But he owned his niche, focusing instead on the “young, vivacious, upwardly mobile” subset of college students that his clients visualized when seeing the company name.  

That belief was vindicated when the acquirer chose to keep the name after the acquisition. 

How Long Does It Really Take to Sell a Business?

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how long does it takeOne of the very first questions we get from prospective sellers is “How long will this take?”  

The truth is that we’ve seen anything from 2 days to 2 months to 2 years…but the average will be 6 to 9 months.  

And that doesn’t include the “pre-listing” process – your actual decision to sell, which will include discussions with us, a professional valuation, and then prepping the documents and paperwork that buyers will want to see immediately.  

Once you’ve completed all of that, we’re looking at 6-9 months.

Why does it take so long?

Well, it’s not actually “so long.”

Perhaps in the internet age of “everything now” six months may seem like a long time, but it’s just simply a reality given the amount of work that needs to happen.

Firstly, your business needs to be marketed. We need to get the word out to interested buyers about what you’ve got to offer. Some buyers may be romanced by your industry, while others may be interested in your cash flow. Some want both, plus significant growth potential.

Secondly, the price really matters. This is why we work hard with our clients to make sure the business is appropriately, and attractively, priced. A valuation helps get us to the right price, but so does disabusing sellers of fantasies about “what my business is worth” that have no basis in financial reality.  

A business is worth what the market is willing to pay. A solid valuation goes a long way to identifying that number with some precision.

Closing

If taking your business to market is the “dating” phase of selling your business, closing is the “marriage.”  

You could spend 1-3 months taking meetings with serious buyers. You need to realize that selling a business is a new part-time job you’ve added to your life.  

You’ll need to be chasing down requests from your broker and potential buyers, and you’ll need to do so in a timely manner. You must do all of this while being patient and realizing that even though you may be ready to exit the business, it’s going to need you for just a bit longer to get through the transition.

Once you and a buyer have agreed on an offer to purchase, due diligence (or as someone else once put it, “trust, but verify”) begins.  

The buyer will need to examine your records and verify that the business is as advertised. He/she will also need to arrange for financing, a lease, and other variables like software licenses or other licenses required by the state or municipality.

Stay focused

We can share many stories of business transactions with you, but the “easiest” ones involve patient and focused buyers and sellers. These people know that a business transaction isn’t to be rushed through, but done thoughtfully and with professionalism.

If you prepare for a timeframe of 6-9 months, you can be pleasantly surprised if it happens faster (as it sometimes does) or more understanding if it takes a little longer (which it sometimes will).

Remember that the journey of selling a business starts with a conversation with one of the brokers on our team.  Let us know if we can help you with this next stage in your business journey.

How to Prioritize Buyers

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prioritize buyersOne of the biggest values we add to any transaction is helping to coach sellers on the various buyers that may line up to buy their business.  

We want to negotiate leverage and make buyers compete for a sale. We can only do that if we convince our sellers to be patient and to not only go down one road too quickly.

Patience and prioritization are key to a successful exit.

Strategic Buyers

When prioritizing buyers, strategic buyers are definitely at the top of the list. This is in part because they can often offer higher valuations, but also because they may already possess a great deal of knowledge about your business and have great motivation.  

These can often be (but aren’t always) competitors, suppliers, or customers who have known you and your team a long time, and as such, don’t need a “getting to know you” period.

What they may need instead is an intensive due diligence process. This is because they may be looking to acquire your company as a turnkey expansion into a market and leverage back-office economies of scale.  

They will want to examine synergies and business processes in depth to make sure joining forces won’t be overly difficult or challenging. Strategic buyers may also be private equity firms who think they can manage your company better than you and plump it up for an even larger acquisition down the road.

Don’t take it personally! Just smile and take the money.

Financial Buyers

However, many of our transactions don’t involve strategic buyers at all but are entirely composed of financial buyers. Their priorities are getting a reasonable return on investment, good growth opportunities, competitive advantages, a growing market, and strong fundamentals – be it great management or reliable staff.  

They’re willing to wait for their return, but not forever. They will also often have to line up financing, unlike strategic acquirers, which can lengthen the time of a transaction.

When we as brokers prioritize buyers to our seller, we do so taking a number of factors into account, including our own sense of the various situations and actors.  

We’re looking not just to close a sale, but to make sure there’s a good match between buyer and seller so that the transaction closes well for everyone.

We believe in win/win…always.

One of the advantages of hiring an APEX broker is knowing that we won’t introduce you to a buyer who isn’t financially qualified, or a seller who doesn’t have his/her paperwork in order. Give us a call today, whether you’re a serious buyer looking to buy or a motivated seller who is serious about selling.

Certifications Matter: What Do All Those Letters Mean After Our Names?

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letters
Photo Credit: woodenearth.com

We really have a wealth of experience in our office here at APEX.  

People come from insurance, real estate, and financial services backgrounds.

And when they become brokers they often bring CFP, CPA, real estate, and even health and life insurance certifications and licenses with them.  

Those certifications give them added insights into transactions involving those specialties.

But we also have certifications for the brokerage industry, and so in this article, we’ll shed a little light on those.

CBI: Certified Business Intermediary

This is really an entry-level certification that can help those new to brokering gain some broader experience beyond what they may have experienced “in the trenches” working on deals. You need to:

  • Have spent three of the last ten years as a full-time broker, or
  • Have a college degree, or
  • Have equivalent work experience which can be substituted for two of the three-year requirement, and
  • You need to have taken at least 60 credit hours of courses in various aspects of brokering and transactions, and
  • Be the lead broker on three transactions in the last 12 months, and
  • Have attended at least one conference, and
  • Be a member in good standing of the IBBA (International Business Brokers Association), and
  • Swear to uphold a code of ethics, and
  • Pass an exam with at least a 70% score.

This needs to be recertified every three years, with conference attendance, a number of continuing education hours, and fees.

CM&AP: Certified Mergers & Acquisitions Professional

Some see this as an additional step beyond CBI. It’s aimed at those who are continuing to develop their mid-market transactions, and it comes with at least 40 hours of coursework, usually completed within a one-week conference.

It’s also a certification that many private equity firms pursue to better educate their principals, less for the letters and more for the education. This shows you that this certification is really of value, given that non-business brokers pursue it.

M&AMI: Mergers & Acquisitions Intermediary

This is the next step up from a CBI certification and can be seen as a compliment or a logical follow-on from a CM&AP certification.  Requirements include:

  • A CBI and 20 hours of coursework, or
  • 40 hours of coursework if not holding a CBI, and
  • Proof of three years full-time as a broker, and
  • At least three transactions in the last three years greater than or equal to $1M in value, and
  • Conference attendance

It has similar recertification requirements to the CBI, and in a nod to sensibility, you can synchronize your recertifications for the CBI with your M&AMI, meaning if you complete requirements for the M&AMI  then you’re automatically recertified as a CBI.

All of our brokers bring different approaches and experience and certifications to the table, but we all share a passion for doing deals the right way. Give us a call to see if we can help you!