Case Study #81: If At First You Don’t Succeed, Try Again (x4)

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Case Study #81: If At First You Don't Succeed, Try Again (x4)You’ve most likely heard the expression, “You learn more from your failures than your successes.” Entrepreneur Josh Anhalt is living proof of that statement. He recently sold his business GreenPath Energy, but not before three failed attempts.

His company played a crucial role in the oil and gas sector, but industry changes prompted Josh to consider selling. With political uncertainties on the rise and technological advances reshaping market dynamics, he knew he had to figure out what to do next.

Recognizing the need to adapt, Josh decided that it was time to let go of the business. He didn’t get it right the first time (or the two times after that), and there are several lessons to learn from his failures.

Understanding the Oil and Gas Industry

To understand Josh’s decision to sell, it’s crucial to understand the challenges within the oil and gas industry. Politics and technology play a massive role in deciding what GreenPath could and could not do.

In 2016, market forces and political headwinds created a demand for a shift in strategy. Josh realized that scaling the business required consolidation. He needed to focus on high gross margins and assemble a team of highly technical professionals if he wanted to make it work.

Despite facing difficulties, Josh maintained a profitable business. He generated $8.2 million in revenue with a remarkable return on investment before ultimately deciding it was time to sell.

The Three Failed Attempts

Josh’s eventual success was followed only by three previous failures.

  • Attempt 1: The first deal saw Josh signing a letter of intent (LOI) without legal review which led to a flawed agreement. The deal collapsed due to issues with definitions and disparities in the interpretation of “cash-free, debt-free.”
  • Attempt 2: In the second attempt, engaging with another company revealed challenges in the earnout structure. The proposal jeopardized employees’ positions, and the acquirer’s reluctance to enter the US market further strained negotiations. It was a reminder of how much his people meant to him. Josh prioritized the well-being of his employees and rejected the deal.
  • Attempt 3: Private equity’s involvement in the third attempt brought promises of an equity roll, but caution on their part derailed the deal. Reps and warranties in the share purchase agreement proved to be contentious, which highlighted the conservative approach often taken by private equity firms.

Fourth Time’s a Charm

Josh decided on a different approach this time.

Thorough due diligence preparation — including the creation of a “data room” that held all of the necessary documents — proved crucial. The deal structure involved 90% cash upfront, 10% stock, and no earnout, which demonstrated the acquirer’s confidence in the business’s future potential. In talks, Josh replaced backward-looking scrutiny with forward-looking evaluation. He emphasizes the value of future opportunities and revenue and it worked. GreenPath was officially sold.

Key Lessons

Although the sale of GreenPath wasn’t as straightforward as Josh may have liked, it was worth it in the end. He sold his company for seven times its EBITDA figure. He also learned a lot along the way:

  • It pays to say no (sometimes): Josh built his company with one thing in mind — to make money. As such, he found it very painful when he had to reject the large sum of money in his first attempt to sell. However, the cons well outweighed the pros in that deal, so it was worth it in the end.
  • Thorough preparation is key: Josh emphasizes the importance of meticulous preparation in the business sale process. Creating a data room with all essential documents, financials, and agreements readily available streamlines the due diligence process and builds trust with potential acquirers.
  • People matter: The emotional impact of selling a business is significant, especially when it comes to the relationships built with employees and colleagues. Understanding the personal and emotional aspects of the process is crucial, and considering the impact on people is an integral part of successful deal-making.

From the importance of defining terms early and adapting to industry changes to the emotional impact on personal connections, Josh’s story is a testament to resilience, strategic thinking, and the significance of preparation in the intricate world of business transactions.

Need help preparing for your own sale but aren’t sure where to start? We can help you with that — and it won’t take us four times to get it right. Give us a call today.