Acquired 29 Businesses in 1990s E: 21 Ted J. Leverette - Top M&A Entrepreneurs

Hi, welcome to the top M&A Entrepreneurs podcast. Today I have a guest. His name is Ted J. Leverett. He's the author of a couple books, how to prepare Yourself to Find the Right Business to buy, and how to buy the Right Business the Right Way. I've uh bought both books. I love, I love this one, and this one really helped me in the conversation I had with the other. Welcome, Ted. How are you doing? Oh, I'm doing great. Yeah, thanks, uh, so thanks for joining us. I have a list of questions for you here that I'm just gonna jump into. You acquired a number of businesses in the 90s, and I, I read your bio here in the back, it said 29, but you have in a while. Do you still own any of these? Did you sell them all? And uh I know that you're now into this uh move to assisting searchers and buyers. Tell me that story. No, I don't own any of them. I'll tell you in a second about a deal I did in 1980 that really set the pace for what I do now and kind of what I try to cause other buyers to do. Can I, can I do that? Yeah, absolutely. This was a really cool thing, um. It was a four-step process. The deal was 1980. I bought 10 travel agencies, and then I bought a school that trained travel agents, and then I bought an ocean cruise planning an excursion business, and that was just step one. Step two, I combined all those businesses in to my company. That means the agencies, the school, and the cruise operation all under one umbrella. And then step 3, I converted that company to a franchise, and I sold one franchise, and step 4 was when that franchisee bought the entire company and rolled out the concept nationwide. So, you know, this was back in 1980 when Fran franchising, well, actually, yeah, when franchising was just getting started in travel, and travel agencies were booming. But you know what, after that, and after those other businesses, I was done. Um, I'm really not meant to run companies. I don't have the personality. I'm, I'm an advisor. You're an advisor, kind of a consultant deal. Are you a big fan of, I think I've mentioned, uh, you also have a buddy named uh. Uh, John Martinka, that, uh, you know, I got his books too, and then you're a fan of Alan Weiss and his methods. Ellen Weiss materially changed the way I did business and John Martinka did business. and so did uh Gerber's book, The Eith. In fact, if it hadn't been for the EI, I wouldn't have done what I've done. I mean, it was that simple. John Martinka was my business partner, first he was my client, then he was my business partner, uh, from in the early 1990s, and now he's out in Seattle where I used to live, and his business is booming, and he and I are in touch almost daily. Yeah, very cool, thank you. Um, so, I'm in a mastermind, and one of the biggest challenges for every 1000 of these people is finding businesses. What would you say the most, and that's what my opinion is, what would you say the most important area of this part of the acquisition game is? Well, right now, I'm tracking 96 searchers. Most of them have been searching for almost 2 years. They haven't done a deal. And there were some things they do wrong. I made a checklist because this is why searchers just don't do deals. First of all, don't forget anything. What'll happen in search is you get this tunnel vision, and it causes us not to notice what's going on, and, and we forget things. The second thing that that I see, and it has to do with those 96 searchers, is they don't know enough about how to search. And, and what that means is you have to avoid or beat the buyer competition. Right now there's record buyer competition because of people losing their job and hating their job and losing their business. There's no room out there for amateur searchers. Otherwise, you get to outbid the dumbest buyers. One more thing on my list, but keep in mind that searching is different from finding. When you find something, you're catching a tiger by the tail, and the first thing that searchers need to do, they don't do it mostly. I know how to handle what we call pre-LOI due diligence letter of intent. It's the kind of stuff you do before you spend money on an LOI with a lawyer, cause once you do that LOI you are committed. And if you think you can change those terms, well, good luck. So, we use a form, it's actually a process. He Performance indicators for pre-LOI due diligence. Learn all about it. Now, why is this important? My clients are buying businesses where they're bringing in, this is they, the buyer, $20 to $80,000,000 to $80,000 per month. So if it takes a searcher an extra month to do a deal, he just kissed away, what, 50,000, 60, 80,000 bucks. That's the value of searching. Yeah. Yeah, I, uh, I met a guy on Search Funder and we met up and he said he he reviewed 1000 businesses, and I said 1000. Are you kidding me? Like I said, just send me some deals that you like and uh I'll take a look, and I looked at a couple of them and then I said, well, I mean, there's not gonna be any perfect business to buy here. I mean, they look all these things of, like, there's some gold mines and 5 of these, I could see all right off the bat. Yeah. You know, as you read in that one of those books, there are no perfect businesses, and if people are waiting for that, good luck. Yeah, good luck. Yeah, I think that's it. I think you mentioned that and uh both of those businesses, how to buy the right business the right way and how to prepare yourself. Um, so what type Uh, what, what do you look for in a kind of, now, let's go back to what you actually do now. You don't buy businesses anymore, but you assist people searching businesses. So what kind of clients do you look for in those characteristics? Because you, you don't wanna get in with somebody that just keeps looking through 1000 businesses. They're just in it for the thrill of the hunt and not the game. Yeah, yeah. Well, the reality is, to do a good deal, you are gonna look at dozens of businesses. It's that simple. Otherwise, you're leaving money on the table. Here's what I, you know what? I'm not looking for clients. I wish I could. If I could, I'd have more clients. Yeah. They're finding me. So when they find me from my books or some other place, here's how I screen them. I want to know that they realize that they don't know what they don't know. If they're a know it all, I'm done. I have no time for them. They need to be the kind of people who are willing to assemble an advisory team at the same time they might hire me. If they don't have the right lawyer and accountant, I'm not available. So one of the things I help them do is pick, or at least screen the right lawyer and the right accountant. We want it up front, cause there are a few things that happened up front that the searcher needs to get clear with the lawyer and particularly the tax accountant. The other thing I'm looking for to find out whether somebody is worth my time is They need to understand that concept of lost income opportunity. If I had to explain to them that it's costing them 50,000 every month while they're dithering, well, they're not my kind of person. Uh, they also, and I make them do it, just like brokers make them do it, just like sellers make them do it, just like banks make them do it. I make them show me upfront their financial capability. And their managerial capability to do the kind of deal they intend. Right now, these record number of searches out there, they either don't have the money or they don't know how to buy a business, or if they did buy it, they don't know how to manage it. I guess I can't say it any other way. Yeah. Well, so what happens if, you know, you're kind of weak in one of the characteristics, and I'll, I'll tell you, I know a lot of people in my mastermind, let's say financial capability. I mean, a lot of them could not put up, uh, you know, 10 to 20% to buy a business. So what do you do there? Well, that's where we have that advisory team. If we have people on our team that have a proven history of facilitating deals like we want to do. And they are proactive, not reactive, and they're good playing together on the team. When the searcher or the buyer stumbles over the normal speed bumps, and they're going to be about 1000 of them, they pick up the phone or the Zoom or the email, and they send off a message to the lawyer, the accountant, to me, whoever's on the team, and 20 minutes later they have the answer. It's the do it-yourselfers out there who are wasting time and blowing themselves up. Yeah, yeah, I, I agree with that. Because I've heard the phrase in our mastermind called the deal Team 6. You need to have that in place. That's all your advisory. Um, lost income, that's just a motivation. It's just like to make it happen, so you have to take massive action on the front end. Um, and then the financial capability, which is, you know, do you have the capital to raise that and you're gonna have to go out and find investors. That's a different skill itself, yeah. Yeah, well, so how is it important, how important is it to raising capital to search or somebody says, God, I got a beautiful business, it's 10 million bucks and I'm gonna need $2 million extra dollars. Yeah. Money talks, bullshit walks. It's, it's hugely important. And by the way, and when I'm screening searchers, for example, this morning, I had an interview with the searcher, and he was a little, let's say, put off when I said to him, if you can't show a business broker, your advisory team, uh, the bank, a seller, that you have the cash to do the deal. They're not gonna talk to you. They don't need to. There are too many buyers out there that do have the cash. The other thing that we need to be able to know is sellers are financing deals. I beg clients, and actually, I don't beg them because my clients are smart enough to know, we do not buy a business unless the seller carries some of the paper. It could be 10 to 20%. I did a deal, uh, last year, I think the seller carried 550% of the purchase price. And then finally, the bank, you've got to have a bank. People say, well, what about SBA? Well, that's not always a smart move, believe me. Do your homework.'ll take, you know, 90 days or more sometimes. Yeah. Well, it's not myology. It's not only the time. There are things that happen in the process of trying to get an SBA loan that a lot of sellers don't like. I don't want to go into it now, just do your homework, but Don't forget creative financing, and I've done lots of deals where we were able to do things um with the businesses money, be it cash flow or it's assets to get a deal done. I even wrote a book. You don't have it, John. Uh, you know, I tried to order the book. It's out of print on Amazon. Oh, I know, but you can get it from my website. I. Listen, how to get all the money you want for your business without stealing it. That is my number one selling book. It came out in 1997. It used to be in bookstores. Now it's self-published. I'll get around to Amazon someday, but right now it's on the website. Yeah, I'll go there. Thank you very much. And do you work with sources directly? Excuse me, that, uh, you know, say if I do need, you know, 5, like I got the 1.5. I need 500,000 to make this deal happen. Like can you like just work with sources to do that? By sources you mean money sources? Yeah, money sources, yeah. OK. Um, I don't work with them directly, but I show my clients how. I mean, sources of money don't want to meet Ted Leverette or a bank, or excuse me, a lawyer or accountant. They don't have time for that. They're they're in the money business. So, what I do is put my buyers through a training program, so they know how to talk to sources of financing, and I begged them, this one I do beg on. I beg them to have at least, at least 3. Banks willing to at least look at the size and kind of deal they're going to do in the locality they're going to do it, and we don't just apply to one, we apply to all three or more. Why? Because what comes back are wildly different proposals on interest rates, the cost of getting the loan, and other important terms, things like the personal guarantee. There are just many things if you can get the banks to bid against each other. Yeah, I think you mentioned that in the uh how to buy the right business to right, or no, how to prepare yourself, find the right business, especially when there's a story in there where the guy went out to 3 different businesses and got different different terms, yeah. Yeah, uh, what's your overall strategy for acquisitions for your clients? So somebody starts working with you and you put them through, of course you're gonna qualify them first, then what? What happens? Well, this one I learned the hard way. And I don't, I won't go into it here. It's in the books. The first, the first business I bought was an ever-loving disaster, wasted a year of my life, tens of $1000 of legal fees, a mess. So here's what I know. Focus on mature, profitable, fairly priced businesses that have proven sustainable, competitive advantage. And I like businesses. I, I want my clients to like businesses. That are a platform for more acquisitions, cause you see, the big money is not made in running businesses. No way. The big money, it's made in trading businesses, M&A and selling those puppies. Oh my God, that's why I'm in the middle of, uh, your partner's uh growth company by acquisition. So I have to mention that, uh, uh, do you have a step by step by step process that somebody sits in like, hey, this is what I want you to do this week, this is what I want you to do that next week. Yeah, in fact, John Martika and I developed it, but I think we finally got this solidified in the mid 90s. We call it the 22 step business acquisition sequence. Now, he may not use exactly those words anymore, because that's what we used way back then. I've stuck with it, but since he and I, you know, we write books and stuff, we try to brand it a little differently. But, but we know exactly what's to be done. in what order? Through search, due diligence, financing, appraisal, negotiations, and transition into the company. Yeah. Yeah. And, uh, what happens if you find somebody that doesn't do, you know, just kind of falls flat? I mean, life happens, you know, kids or something, like if they're just not following through what they should be doing, and they come back, he goes, like I, I just, it's not working. I can't find a business. Well, if you want to bring home $50,000 a month, that's about $12,000 a week. That's a couple of $1000 a day. I just remind my clients, time is money. Get off your ass. Get off. Oh, there, well, there is one more thing. We try to get them to prepare themselves for search where they market themselves. For some reason, searchers think that they're valuable. Well, they're not valuable at all, cause there's just too many of them. So what we have to do is prepare ourselves to be the number one choice of brokers and sellers. That's a big job. I just, this morning I talked to a searcher, I just completed the job. We just for the marketing plan, just to prepare him to go out and search. 137 emails. About 25 zooms and a dozen documents. That was just the marketing plan before he talked to the first broker and first owner. When he does, he'll be the first choice. Yeah, what do you, for a person that's a newbie, how many do you think there has to be in the top of the funnel to go down? I mean, some people say it's 100, some people say it's 500, some people, of course, some people look at it as like 1000, yeah. I'll say it one more time. If you want 50,000 a month, that's 12,000 a week, that's a couple 1000 a day. The bigger the funnel, the sooner you get the deal. There you go, yeah. Do you work with searchers, buyers on acquiring a non-controlling interest, let's say less than 51% of the business? Um, nearly all my clients purchase businesses where they have a controlling interest, not near, not necessarily 100%. Um. But they are in control. Some of the best deals is where the owner stays on for a while, and the, the buyer comes in and it becomes an investor working partner and the the former or the existing owner and the buyer carry the business to the next level, that makes the business more valuable. The seller exits then, and they get a bigger payment at that time than they would have if they would have sold the business upfront. You know, your book helped me because I had a conversation yesterday with the seller, and he said, well, what are you looking for? And I said, look, ideally, #1 is that the seller stays on for another 1 or 2 years. But if that doesn't happen, that there's a #2 qualified to step in that spot. And he goes, that makes sense. And then he just went to the next question. It was like just a check mark off on his. Mm Do you ever get involved in the negotiations with the buyer seller? Well, there's a big risk there. Um, if I get involved, if a lawyer gets involved, if an accountant gets involved, that's gonna force the seller, the owner, to bring in their lawyer and accountant at the minimum. Trust me, those people are not going to know enough about deal making, and that's when the, you know, what hits the fan. So yeah, I am heavily involved, all through negotiations, which begins the first day of search. But I'm behind the scene. And I'm rehearsing with my clients, all the stuff that comes up, and when it comes up, they're on the phone or Zoom, or email, and as he said, she said, and I help them understand what the next move needs to be. Now, sometimes I do wear the black hat. Don't like to do it, but it's better I wear the black hat and tell the broker or the seller the bad news. And have them be mad at me, then the searcher, cause see it's all as John Martea says, it's all about relationships and buyers and searchers cannot afford pissing off brokers and owners and sellers. So, There are those moments when somebody like me needs to tell the owner or the broker what they need to hear, and they get mad, but the but the searcher, the potential buyer, still keeps the relationship. Does that make sense? Yeah, um, you guys, you both brought that up in your books. Both of those books and John's books about the relationship to develop, like the first call is not really talking about numbers, it's talk just like, hey, you know, what are you doing? What do you, where you're gonna go, what do you want to do with the money and building a relationship with the seller. You know, I tell my clients, and if any of you listening, remember, Google the word likability. Spend an hour learning about that. You'll get it. Yeah, yeah, I, I agree with that, especially if you're gonna keep the seller on for another 12 years, but be able to like, like it. I, I have a buddy that just bought a number of businesses, and he went through that same process of, uh, you know, like a bunch of the first ones, he just bought on numbers, and he goes, man, they just like worked worked out. I couldn't work with the person. Now it's the first criteria is, do I get along like the other person? And do they like me, right? You know, this cultural thing is big. I, I, I, one of the biggest disasters I saw a client experience, I represented a, a white collar guy, top executive. He bought a blue collar business. Guess what? He didn't fit it at all. They didn't like him, he didn't like the employees, and that whole deal went sideways after we bought the company. Yeah. Yeah, I had a buddy that bought a toilet making business manufacturer, and he was like a, you know, like a software highbrow guy, and he bought a toilet paper, but he loves it. He loves it because he's from Ohio, he's in the middle of the country, he's just fit for him, yeah. Yeah, so, uh, how many, I get curious, how many clients do you work with any one time uh to to help buy a business, the whole process? It kind of depends on how much free time I want. And, and it depends on the complexity of the work. So if, if it's a very complex job for a larger than normal business, I will have fewer clients. If, if I'm brought in, let's say, only to help in search. Well, I can have a lot of searches running at one time, a lot. If I'm brought in on due diligence, and it's a simple deal, I could have 45, 10 of those. If I'm brought in for what what John Martika and I call a full package, that means I'm hired day one and I stay until after closing, well, then it's fewer clients because we're gonna be in bed with them all the way. But I never know the num I I can't say a number of clients, cause it really does depend on the size and Type of business and how prepared the buyer is going to be to know what it takes to get the deal done. Yeah. Do you, when you said we, are you teaming with, I mean, I, I, I noticed that John, you are a business buyer advocate. You're a team and we're together. The only person in the world authorized to use the title business buyer advocate is John Martinka in Seattle. That's my registered trade name. If you see anybody else using it, they're not trained by me. I don't approve of them. John and I, we do. On the phone or Zoom or email. Check in with one another if there's something we're stumped with. But in a day to day basis, no, we do not share clients. We don't work on the same cases together. But I use John the same way I use the lawyer and accountant, and he does the same for me. A different perspective. Do you ever get stumped anymore? I mean, after 29 businesses in the 90s and working with probably thousands of people in the last 25 years, but you ever get stumped? Uh about every day. Oh really? Yeah, now, most of the time I don't have to go to John. Why? Because I, I'm a great note taker. That's how come I could write those books. So I just go to my billion, and I'm not kidding, or maybe not billions, hundreds of thousands, and I look stuff up in my own system. I have to look up my own stuff. I am gonna say this book, if you get any book today, if you go to Amazon, get this book because it's so detailed, he has about 40 questions that what to ask the seller on your conversations before the LOI. It is a fantastic list to ask, uh, that you should not forget. Hey John, you know what I do with the clients, those questions, we rehearse them with Zoom. We, my guys can get, they can win an Academy Award when they're asked those questions, cause we have canned answers for them. We don't have canned answers generally, but in their own voice, we create the answers that fit their personality and what they're trying to do. So brokers and owners go, wow, this guy is a breath of fresh air. And it it makes you sell. I read this book and I had a conversation with seller. It made me sound like I was just much more experienced than I was. I just like. Had these straight answers. I wasn't thinking around. My eyes weren't darting off, I wouldn't be thinking about what to say. Um, so how do you know, as a business buyer advocate, you're working for sell, how do you make money in the process? What? I try to price my fee. On value, not hourly. I do sometimes work hourly if if somebody has a question, but, but generally I'm hired for all of search or all of due diligence or the entire shebang. So I quote a fee for whatever that module work is or the entire fee. Um, I try to get people who are thinking of hiring me to understand what it's gonna be like for them, what it's gonna cost them, um, working on their own, or only with a lawyer or accountant, or me on the team. I try to position myself, not as the quarterback of that advisory team, but let's say I'm behind the scene, having a lot of say, because I know how lawyers are supposed to behave, and accountants are supposed to behave. And if they're not behaving. Most buyers and searchers don't know it. I'll know it. I can, I hope, diplomatically with my client, privately say, here's how you can nudge that accountant and lawyer into reality. So that's really big, and it determines my fee. If if someone tells me I'm a do it-yourself for Ted, the fee is gonna go all the way to the top. I set my fees to be my maximum fee, to be about One half of what business brokers charge sellers. Right now, brokers are charging sellers for small and mid-size businesses, about 10% sale commission. Now they have to charge that big number, cause they don't sell most of their listings. So they got really, let's say, make a lot of money when they make a sale. In my case, nobody hires me unless they're gonna do a deal, cause see, I get paid upfront for each of those stages. I can pay it upfront. Yeah. So nobody, nobody hires me unless they're gonna do a deal. So if they hire me only for one stage, I quoted you for that. That's the fee. I stay with them, usually up to a year. Unlimited, whatever it takes to get that thing done for a year. And your success rate on that sounds like it's pretty high. What what would that be your success rate on that? Some of well, you know what, it's, it's. It's pretty high, but, but stuff happens, and I'll tell, I'll give you some examples. Um, I've had people who say, I only need you in search. Well, they're delighted with that because for less than 10,000 bucks usually, they're meeting owners, they're never gonna meet without me on the team. They're gonna do a deal, maybe they don't keep me on the team, but if they keep me all the way through, they are gonna do a deal, except I've had cases where people have paid me a ton of money. I'm talking 10s of thousands of dollars. They thanked me and said, Ted, someday I've, I'll finish putting to use. But when I told my employer I'm quitting, I got a big promotion and a bonus, and I think I'll stick it out for a few more years. That happens. I've had clients die. I've had clients with last year get COVID and die. I've had the biggest one that would make me so sick is I have, I've had several clients who just before closing, their spouse says, I don't want to do this, and it results in a divorce or a big fight in the the Oles. Turtle. Yeah, so, so, so nobody out there is getting 100% done deals, believe me, it happens. But I, I'll, I'll tell you what, I, they, they did a poll of, uh, in our mastermind, there's a 1000 people and searching and being able to, everybody, what they do is the first thing they do is start going to the broker sites, you know, cause it's that's where the marketplace is and that's where advertising and your book tells the majority of businesses are not being advertised, so. You know, you gotta be kind of a sales person, get out there and do some marketing, and do some networking, and do all of that all of the above to get that massive action happening of deal flow. And this is why searchers need to create their own marketing plan before they talk to the first broker or first owner. It's all about being first choice. Yeah, that's amazing. So I don't have a lot of time left with you. How is this M&A game changed your life? I mean, you've been doing this for 30 plus 40 years now since the 90s, so yeah, how's it changed your life? That's that's why I grew this, uh, goatee, show, show my time in grade. Well, first of all, it made me financially independent in my 30s, in my 30s. I'm, I've been lucky enough, or actually just because I work hard, to have an income in the top 5% in the USA every single year I work full time in this business. So this is a great business. Everybody knows people in the M&A game make a lot of money. But I'm not in it just for the money, as John Martinka can tell you. For 3 times in my life, I retired for 5 years. I didn't come to a complete stop. I would cherry pick a client once in a while, but mostly what I did is, one year I became a restaurant critic and wrote a book. Another year I wrote a book for the Olympics that the state of California bought and gave out when it was in Los Angeles. I invented a uh a board game that sold a bazillion copies. So I take these big breaks. Right now I'm not at a break, uh, what time I have left, I'm, I'm trying to do deals. Yeah, beautiful. Thank you. I wanna appreciate, thank you for the time. So, hey, whoever is listening to this, if you like what you hear, you know, subscribe to me on my podcast or uh YouTube channel, and if you would like uh Ted Leverett's uh books, go to his website at the business Fireac advocate or get on Amazon because they're there and that's uh I'll tell you. I, I love that book, How to Buy the Right Business the Right Way. What's got in there really is a uh helps you leap forward. So Ted, thank you so much for uh spending time with me today. OK, John, thanks, and for the rest of you, be careful out there. I am going to stop.