Episode 114 – Selling a Business: Bad Behaving Attorneys

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In this episode, we share the story of a deal that faced potential derailment due to an attorney’s intervention. This highlights the critical role of attorneys in the deal-making process and the importance of careful selection and collaboration with brokers and sellers.

We stress the significance of time in deals and discuss pitfalls that arise when attorneys adopt an adversarial stance, risking the deal’s closure. Additionally, we explore how banks evaluate deals and how changes in business revenue and cash flow impact financing decisions and sale prices.

Tune in as we provide insights into selecting the right attorney and share tips for navigating the deal-making process successfully. With the right team and approach, overcoming obstacles and closing deals is achievable. Stay tuned for more insights from our experience in business brokerage.

The Downsides of Selling to Private Equity

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The Downsides of Selling to Private EquityPartnering with private equity firms has become an increasingly popular choice for entrepreneurs who are looking to take their companies to the next level but are not yet ready to sell entirely.

And why not? It offers access to capital, expertise, and resources that can encourage growth and expansion like never before. But before you jump headfirst into a deal, it’s essential to understand the potential downsides of selling to private equity.

Understanding Private Equity

Private equity firms are essentially pools of capital from high-net-worth individuals, pension funds, and other institutional investors. They invest this capital directly into private companies with the aim of generating high returns. Typically, they purchase a majority stake in the business, and the business owner retains the remaining shares.

Before we touch on the downsides of private equity, let’s first look at the benefits. There’s no doubt that these firms can provide hefty cash injections, strategic guidance, and expertise. Many business owners are intrigued by the potential for rapid growth and increased market share that teaming up with a private equity firm can bring.

Partnering with a reputable firm can also give credibility to your company. The backing of a well-respected investor could improve your reputation, attract top talent, and strengthen relationships with customers, suppliers, and other stakeholders. It can also open doors to even more strategic partnerships, joint ventures, and other growth opportunities that may not have been possible otherwise.

The real upside in having the right private equity partner is that the value of your share of the business could be worth much more than the original shares sold to the equity group.

However, it’s crucial to consider what this type of partnership could mean for your business.

The Risks and Challenges

One of the most significant concerns for business owners considering a private equity deal is the loss of control. When you sell a portion of your company to private equity, you’re essentially inviting new stakeholders to the table. This can lead to differences of opinion over strategic direction, operational decisions, and even company culture.

Business owners may find themselves with a smaller ownership percentage and less influence over decision-making processes. This shift in ownership dynamics could strain relationships between existing stakeholders and lead to conflicts of interest regarding the company’s direction and priorities.

Private equity firms are notorious for their short-term focus on profitability. While this can lead to quick wins like increased revenue and streamlined operations, it may come at the expense of long-term sustainability. As an entrepreneur, you must ask yourself whether you’re willing to sacrifice your vision for short-term gains. What could it mean for you, as the owner? What about your employees?

They may impose changes to your operation’s structure, processes, and even personnel in pursuit of their growth objectives. Private equity firms tend to implement strict performance targets and timelines to achieve returns on their investment. This pressure to deliver quick results can create a high-stress environment, which will negatively impact your team. Most of these firms are much more concerned with turning a profit and may not even consider what it could mean for your company’s culture.

What’s more, unrealistic growth projections will inevitably disappoint the firm if your company fails to meet certain targets. It’s understandable — who can work well under such stressful conditions?

Mitigation Strategies

Given these challenges and risks, business owners must approach private equity transactions with caution and careful consideration. That said, if you’re still keen to sell to private equity, there are ways to mitigate the risks.

First and foremost, thorough due diligence is key. Take the time to research potential partners, understand their track record, and assess their compatibility with your company’s goals and values. Be ready to negotiate terms that protect your interests so that you can find a middle ground between your vision and the firm’s objectives.

Seeking legal and financial advice is also essential. A seasoned business broker can provide invaluable guidance throughout the transaction process, helping you navigate complex negotiations and safeguard your company’s future.

While selling to private equity can offer significant benefits, it’s not without its drawbacks. Business owners must carefully weigh the pros and cons and proceed with caution. When you understand the challenges associated with private equity sales and implement specific mitigation strategies, you can increase the chances of a successful partnership that benefits everyone involved.

Remember, you don’t have to go it alone. As experienced business brokers, we’re here to help you navigate the sometimes murky waters of selling to private equity. Get in touch with us today to learn more about how we can help.

Episode 113 – Buying a Business: Tell Your Lender Everything… and we mean EVERYTHING

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In this episode of the Apex Business Advisors podcast, Andy and Doug discuss the critical importance of honesty between lenders and borrowers when securing business loans. They examine a recent transaction failure resulting from undisclosed financial issues, highlighting the need for transparency.

The episode delves into potential pitfalls in filling out SBA loan forms and securing commercial financing, citing real-life scenarios such as bankruptcy cases and undisclosed felonies. They also explore how banks scrutinize loan information and interpret profitability matters.

Additionally, the discussion covers types of businesses ineligible for SBA funding and the risks associated with borrowing before closing. They emphasize the importance of viewing the bank as a business partner and fostering trustworthy relationships.

This episode serves as a valuable resource for anyone seeking to secure a business loan, emphasizing the importance of full financial disclosure.

Case Study #85: Acquired for $15M with 15 Employees

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Case Study #85: Acquired for $15M with 15 EmployeesAny entrepreneur who takes the leap into healthcare or health technology, especially with no prior experience in the industry, usually does so in response to a tragedy. That was the case for Aaron Leibtag and Steven Aviv when they created Pentavere Research Group, a digital healthcare company.

When Steve’s mother passed away unexpectedly due to a data error, the pair built AI-powered software that can identify patients who may not be receiving the care that they need due to the information being buried in a patient’s electronic health record.

Despite only having 15 employees at the time, the company received an acquisition offer for a whopping $15 million.

The Idea

Aaron has a background in finance and spent some time on the private equity side, evaluating consumer-facing companies to drive better results. As such, he has an appreciation for what happens when you combine great data with great people and great processes.

His co-founder, Steven Aviv also spent some time in finance but on the technical side, building large financial systems that ingest data. One day, his mother went into what should have been a routine procedure. Based on her comorbidities (coinciding diseases), she needed to be put on a certain medication. This information was missed by her care team because it was buried in a clinical note and she passed away as a result.

Both Aaron and Steve were at the point in their corporate careers where Steve in particular was helping companies make millions of dollars every day by analyzing data. When such a catastrophic event — that could have been prevented through analyzing data — happened to Steve’s mother, they started to do some research. They found that the majority of patients fall through the cracks in some way, shape, or form within healthcare.

While not every patient experiences such a catastrophic event, many don’t receive the proper treatments, medications, and interventions. So, Aaron and Steve decided to fill in that gap and build something to help.

They built an AI engine that can ingest and read clinical notes within an electronic health record that a doctor dictates to identify patients who are falling through the cracks in healthcare systems. In layman’s terms, they’re able to take all of that clinical text and turn it into a structured Excel spreadsheet-like data set that can be used to improve healthcare.

Once they had the product, they validated the technology by getting the outcomes published in high-impact peer-reviewed journals that matter in healthcare. Now, they were ready to bring it to the market.

The Business Model

Aaron and Steve didn’t know what the business model for their product would be. They simply knew that the industry was large, and the problem was great.

Unlike other digital health companies — when they were growing it was the heyday of venture capital raising — they went to one of Toronto’s largest hospitals to really understand the problem.

They say that they got lucky and were approached by people on the medical side of pharmaceutical companies who themselves are trying to find real-world evidence to understand how their medications were working. The companies were willing to fund the project so they would have access to the findings.

Six months later Aaron and Steve presented their results at the most prestigious lung cancer conference in the world in Barcelona. Soon, more pharmaceutical companies started to call asking them to do similar studies.

The money from those studies helped to fund their R&D and validate their AI engine, but say that at that point there still wasn’t a product or a business model. That said, it was a step in the right direction and both Aaron and Steve knew they had come up with something valuable — and needed in the industry.

The Acquisition

Aaron and Steve began to consider an acquisition when they had over 19 high-impact peer-reviewed publications validating their engine — a claim that not even companies like Google have.

It hit home for them when they got a call that they were nominated for a Prix Galien, the equivalent of the Nobel Prize in the life science industry. They were also told that there was only a very short list of other AI companies with the same criteria as theirs. So, Aaron and Steve decided that this was the time to commercialize and scale.

To do so, they didn’t just need capital, they also needed access to data. The right partners with the right mindset were the missing pieces to the puzzle. It wasn’t so much about an exit, it was trying to find a like-minded partner.

When they tried the venture capitalist route, all it brought them was capital but no data. What’s more, they didn’t really like the idea of giving up control of the company, no matter how much money someone was willing to put down. They wanted — and needed — to partner with someone with the same goals, mission, and values (to improve healthcare) and they just didn’t find that with VCs.

That’s when they began talking to Healwell AI, a healthcare technology company also based in Canada. They were willing to open up their data ecosystem and give them the funding they needed. Healwell is also a publicly traded company and has a strategic alliance with WELL Health, the largest private provider of healthcare in Canada.

It was an easy yes.

Key Lessons

  • Uninspired? Identify market gaps. Aaron and Steve recognized a significant gap in healthcare where patients were not receiving proper treatment. This realization led them to develop a solution that could identify and address these gaps. If you want to build a business but aren’t sure where to start, pick an industry and figure out what it’s missing.
  • Create, tweak, validate. Before bringing their product to market, Aaron and Steve validated their technology by getting outcomes published in high-impact peer-reviewed journals. Yes, they were required to due to the nature of their product and the industry, but there’s something to be learned here. Come up with your own system of validation to determine whether your idea is viable, and then be willing to tweak it if needed.
  • Seek strategic partnerships. Aaron and Steve first went to VCs but quickly discovered they wouldn’t likely find their ideal partner there. Rather than giving up, they sought out companies that had the same mission, values, and goals as they did. Their patience and due diligence paid off.

Although it operates under the Healwell umbrella, 48% of the company still belongs to Aaron, Steve, and the other original shareholders. The final Letter of Intent was signed on September 22, they announced the definitive documents signed to the public markets on November 15, and closed the transaction on December 1, all for a cool $15 million.

Aaron and Steve are still very much involved in the day-to-day operations post-acquisition, and Healwell’s stock went up 30%. It’s safe to say everyone made it out a winner.

If you’re ready to take your business to the next level and aren’t sure whether an exit or an acquisition is your best bet, we can help. Give us a call today to talk about your options.

Episode 112 – Buying a Business: The Dos and Don’ts for a Productive Buyer Seller Meeting

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Andy and Doug share amusing anecdotes from memorable buyer-seller meetings. From unexpected attire choices to mismatched buyers and sellers, they entertain listeners while offering valuable insights into effective communication, preparation, and broker involvement in successful business deals. This episode is a must-listen if you’re in the market to buy or sell a business or simply enjoy lighthearted business stories. Tune in to laugh, learn, and gain new perspectives on the world of business transactions.

Know Your Broker: Ken Weiner

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Ken WeinerOne of the ways a broker joins our team is by being a client of ours. We either sell their business, or help them buy one, and they end up loving the process and come knocking some years later. Ken Weiner is one of the former: Valerie Vaughn sold his company, Creative Candles, in 2016.

The company was a Kansas City-based candle manufacturer, started in 1961 by a flower-child artist type and her chemistry-oriented spouse. They specialized in hand-dipped taper candles and featured a wide variety of shapes, sizes, and colors. They had a very good run for a while, but by the time that Ken bought it in 2005 it was in pretty bad shape. They had never updated what had made them successful in the first place. Unfortunately, they were people with a great idea who didn’t build a business that could stand the test of time.

In a sense, it was a fixer-upper, and Ken spent a lot of time rebuilding the brand by working closely with major customers like Bloomingdales, Pottery Barn, Williams-Sonoma, and Simon Pearce. His frequent trips to NYC made him an expert on what it took to succeed in the hard world of retail.

But this knowledge of business and its inner workings goes back to his childhood. His father owned an independent pharmacy and seemed to always struggle. Ken was only in grade school but already he had the concept that, “owners weren’t supposed to work so hard.” As he looks back on it now, he thinks his father was really a job person that got talked into a business by a friend. Indeed, Ken’s dad, “was probably someone who should have just worked as a staff pharmacist; he would have been a lot happier,” Ken muses.

This taught Ken early that skill in a particular field, be it in pharmacy, or as he would learn later on, in candle-making, does not qualify you to run a business in that field. You have to know that you don’t know a lot and be willing to learn. As you learn, you have to put together a process and training that goes along with that for your team.

On the other side of the table, with those who would like to buy a business and don’t know where to start, Ken often asks about someone’s personal and professional life. It’s not always possible to buy a business aligned with a passion (e.g. buying a candle business when you’re a big candle fan already) so he often will ask them to look back and review what they were not only talented at but really enjoyed.

When he’s not helping buyers and sellers, Ken lives in Kansas City, where he can enjoy the company of his three grandchildren, who sometimes accompany him up to the family lake home in Miami County. If you want some running tips, don’t hesitate to ask him: he’s run six marathons.

For more information on each of our brokers, view our team profiles.

Episode 111 – Buying a Business: Navigating Business Acquisition in Changing Times

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In this episode of the Apex Business Advisors Podcast, host Andy Cavanaugh and Doug Hubler chat with Jason Moxness, a seasoned expert on Small Business Association (SBA) loans. They discuss recent changes in the SBA landscape and their impact on business acquisitions, covering updates on loan application processes, criteria, and qualifying factors. The conversation also explores essential advice on loan approval and investment decisions, including rising interest rates and equity requirements for buyers.

New opportunities, such as using SBA funds to buy into a business and reduced down payment requirements, are highlighted, along with provisions for business growth through acquisition. The episode ends with a focus on being a “strong borrower” and seizing new provisions to maximize benefits. This resource is invaluable for those navigating SBA loans for business acquisition or expanding existing ventures.

3 Things Every Business Owner Must Align Before Selling

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3 Things Every Business Owner Must Align Before SellingEntrepreneurs often approach our team of brokers with a business to put to market that isn’t ready, perhaps more often than you would think. So, how do you know when your business is actually ready to sell?

Three things need to converge to make the business saleable — the business needs to be ready, the owner needs to be ready, and the sale has to make financial sense for the owner.

#1: The Business Has to Be Ready

It may be obvious, but first, you need to make sure that the business itself is ready to sell. You should be able to hand the proverbial keys to the kingdom over to the next owner without too much explanation. As such, the structure needs to be ready, and you need a business valuation, just to name a few things.

As an example, is your organization reliant on one customer? If you find yourself in a situation where 60% of your revenue comes from one client who you swear will “never leave,” your business isn’t ready to be sold. Even worse if you’re sure they’ll never leave because your brother-in-law is the head decision maker. What happens when he retires or leaves? What happens when you don’t own the company anymore? 60% of your revenue could leave with him.

The truth is, the market doesn’t care if your brother-in-law is in charge — the only thing it sees is your business that relies on just one client as its bread and butter.

In terms of restructuring, as another example, if you need to unwind your C-Corp structure before selling, make sure you do it three to five years before you end up selling. And if you have no idea how much your business is worth, you must work with a professional so that they can perform a valuation. You won’t be able to determine what it’s worth — and if it’s ready to sell — without one.

#2: The Business Owner Has to Be Ready

You as the owner also must be emotionally and psychologically prepared to sell your business. This is especially true for entrepreneurs who have worked in the same industry and potentially the same company for their entire lives.

Do you plan on retiring, or will you pursue another career? If you do want to retire, what will you do with your spare time? A few months of relaxing and watching TV are always nice, but it’s not sustainable. If you’re married, are you prepared to spend a lot more time with your spouse if they’re retired too? These are all very important questions that need answers before you can move forward.

#3: It Has to Make Financial Sense For the Owner

The third thing that needs to align before selling your business is that the deal has to make financial sense for you. You have to determine how much money you will take away from the sale — we call it your “walk away money.”

Again, do you plan to retire, or will you use the money to fund your next venture? You need to have financial peace of mind in either instance.

When determining whether a sale makes financial sense for you, you also must keep in mind the professional fees you’ll be expected to pay at the time of the sale. Accountants, attorneys, and brokers don’t work for free, after all. That’s not to mention taxes!

When you sell a business, you can’t simply tell your broker what you need, and they go out and sell it for that exact price. Your business will sell based on its fair market value. This is why it’s important to get number one sorted before you move on to numbers two and three — if your business is too reliant on one customer or has to pay a lot of taxes after the sale due to corporate structure, you won’t be able to walk away with as much as you hope (or need). And if you aren’t emotionally and mentally prepared to sell, you won’t get very far either.

The moral here is that selling a business takes a lot of forethought and planning, and the earlier you get started, the better. If any of the three aspects mentioned above become off balance, it can cause a deal to be unmarketable or totally fall apart.

Our advice? Talk to us early on so that we can help. When you know what you’re getting yourself into from the get-go, and exactly what you need to do on your end to get it done, everyone wins.