Carl Allen - Growth Through Acquisition

Men, if you're ready to reclaim your edge, listen up. I used to be held back by constant bathroom trips with multiple wake-ups during my sleep and looking for restrooms whenever I was out. Then I discovered better man. After just two months, I started experiencing fewer trips to the bathroom, less urge to go, and I even slept through some nights. I feel a noticeable boost to my overall well-being, even sexual stamina. It gives me the Freedom and confidence to live life on my terms. Betterman is clinically tested and trusted by thousands of men over 25 years. Ready to take back control? Go to Bebetternow.com to order your supply today. That's Bebetternow.com. These statements have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease. Use as directed. Individual results may vary. Hi everyone, it's Bill Black, the exit coach from the Exit Coach Radio show. You know, one of the biggest questions. Get on the show is what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was 5 years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know. You can get it free by texting exit plan with no spaces to 442-22. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions so you can be well planned. And now here's your host, the exit coach Bill Black. Well, thanks for joining me. Always a pleasure to have you with me, and you know, one of the things that we love to do is talk to people that have a lot of experience with business and business transactions. My next guest Carl Allen is a world class entrepreneur, investor, and corporate dealmaker. He's worked on more than 300 transactions worth close to $48 billion in his 30 year plus career. He's analyzed thousands of businesses. Big and small in 17 different countries across nearly every business sector, including technology, pharmaceuticals, transport and logistics, engineering, manufacturing, aerospace, consumer goods. I think we've hit them all here. So we're going to bring him on and we're going to talk about growth through acquisition and other strategies you can use to grow the value of your business as you head towards sale. Carl, welcome to the show. Thank you so much for joining me today. Thanks for having me. It's a pleasure to be here. Now I realize I am as old as I feel. And that was just the first two paragraphs. There is a lot of great work that you've done. It looks like you've been very, very busy and again a serial entrepreneur, someone who just loves the world of business. So tell us a little bit about, you know, how did you, how did you get into that? Tell us a little bit more about you and your background. Sure, so I, um, I started my journey as a dealmaker back in, uh, 1992 straight out of university. So I went to work for, um, a Wall Street investment bank. I was doing mergers and acquisitions, so buying and selling very, very large businesses, hundreds of millions if not billions of dollars. I then went through the private equity route, so I was investing into businesses. I, we sold one of those companies to HP. The large technology company, and I ended up working for HP, um, as one of their M&A directors doing deals all over the world, some really big deals, um, some really small deals. And then I retired back in 2008 and I started buying and selling businesses by myself, kind of like a quasi, um, angel investor stroke private equity investor. So bought and sold tons and tons of different businesses over the years and then about 4 years ago I started, in addition to buying businesses, coaching and mentoring entrepreneurs, how to do what I do, how to find great businesses to buy, how to scale them, and then how to sell them. Now you know, one of the things that I see that you, you say here is that you started Dealmaker Wealth Society, formerly Ninja Acquisitions, because you believe that starting a business from scratch is a terrible idea, and I'm putting that lightly, kindly here. And so, why, why do you say that? Let's give our listeners a little bit of background about why you would say that. Sure, so if you think about startups and, and the market data's horrendous, there's over 7 million Americans according to the SBA start a brand new company every year and 96% of them will fail inside of 10 years, 50% fail. Inside of the the first year alone, and those are stats from Michael Gerber who wrote the email, Tony Robbins, Grant Cardone, those are the common accepted numbers and when you think about it, it, it's not surprising because as a startup company you have no employees, no customers, no cash, no credit, no reputation, no premises, it's really, really tough from a standing start. So my advice to entrepreneurs has always been rather than Start a company, go and buy a profitable existing business that the owner wants to sell for all of the reasons we know about retirement, boredom, sickness, frustration, whatever the reason, and I like it to, uh, to owning a car. So I've just ordered a Tesla which came to the UK, which is where I'm based, uh, several months ago, and I could have done one of two things. I could have gone out and bought the wheels and the glass and the The wiring and the and and the battery and all those different things and then figured out on YouTube how to put it all together and then assemble all the pieces on the drive and, and figure out, you know, am I plugging things into the right place or did I go to Tesla, buy a car that they've already built and finance it using Tesla. So it's the exact same process for me for somebody that that wants to get into business. It's quicker, cheaper and easier, far less risky to buy rather than stop. Uh, I'm, I'm wondering, you know, that's, that's a great analogy. I really like that. I'm wondering if our listeners are thinking, you know, that makes a lot of sense, but, um, how do I know, um, how, uh, what I'm what I'm looking, because one of the things you have to be really good at if you're buying a lot of businesses is looking at a lot more businesses and saying no, um, for a for a variety of reasons. Uh, could you share what some of the maybe top three things that immediately allow you to dismiss a business because it's, you, you, you see this is just gonna be, this is not what I'm looking for at all. Yeah, so, so for me there are 3 primary criteria that you need to look for when, when you're buying a business. So the first one is buy a business in your lane. So buy a business in a sector that you know, you understand, you're passionate about. You can add value to that business as the owner, and you more likely have a network that you can plug into that business to optimize it, grow it, scale it, all those different things. Um, so that's the first point. And, and if you're an existing business owner, you can buy other businesses to scale your existing business. So again, buy something that makes sense. It could be a strategic acquisition to enter a complementary market. You could buy a competitor. You could buy somebody in your supply chain. So if you're a If if you're an engineering company in the automotive space and you're buying components from other suppliers, acquire one of those companies and then you're doubling down on the margin that you're making as you're supplying your own products and services. So buying the right business really falls down to, you know, is it a strategic fit and is it going to empower you to do the right thing? So I, I see people that You know, they may be, they may be engineers from IBM, uh, and they leave and they want to buy a restaurant, you know, don't go, go and buy an IT company or go and buy something that. You know, you understand, you can add value to it. It just makes the process so much easier. The second point is all about the seller. So go and buy a business from a seller that that's motivated, um, and sellers are motivated for lots of different reasons and the types of businesses that I buy, I like to buy businesses cause I'm not a trade buyer. I like to buy businesses from sellers that Really want that safe trusted pair of hands. So some sellers just want to sell for the highest amount of money and they want most of that money at closing. That and, and that's fine. I don't buy those types of businesses. I want somebody that wants to protect their legacy, wants to protect their employees, wants to protect the culture of their business, and make sure that When that business sells it it's in good hands and it's gonna grow and what's really interesting though is most business owners that start businesses grow them and come to sell. They've probably spent more time in that business than they have with their own family, so I think selling to the right person has to mean something. So that's point number 2, and then point number 3 for me because I'm all about leverage is I want to buy a business that's profitable. I want to buy a business that's got good assets, healthy balance sheet, and ideally it's got good cash flow because then I can finance that acquisition, uh, through a third party like the SBA 7A loan program or through equity investors that I may partner with. I, I don't buy. Distressed businesses or businesses that are are in a lot of trouble. I want to buy really good businesses with, you know, really good management teams, good processes, and um they just need some scale and they need some optimization, that's really what I'm looking for. Now, with the demographics that we're facing right now in the world, um, all over the world, you know, the baby boomer generation is uh right around the middle of it is about 65 years old, which means there's uh Up to age 75 and down to age 55, a lot of business owners are thinking this way, you know, retirement is all over the newsstands, right? When we look at, well, I always look in the airports at magazine racks and I see what's the general message here and for the last few years it's been prepare for retirement. Are business owners thinking that way as much as they used to at age 65, or is it true that 65 is the new 55? That's a really good question. I, I think. You know, I read in the Wall Street Journal that there's 10,000 baby boomers retiring every single day and and 19% of them own a small business and people talk about, you know, the 12 million businesses and the, the $1 trillion of assets that they're gonna get bought and sold over the next 10 to 15 years. Um, my concern with that is. The the kind of sell side is, is rapidly expanding, but unfortunately, there isn't the expansion on the buy side. There's still a Severe lack of qualified buyers with, with access to capital to to buy these businesses. So unfortunately what's happening is it's depressing the multiples, um, on the, on the average. Um, obviously you've always got banner standout companies that that can sell for a premium valuation, but my concern is you've got a lot of baby boomer owners deciding that it's time to sell. They were originally going to pass their businesses down to their children. Um, who no longer want to do that. They want to go to college and be doctors and dentists and all those different things. So I, I think number one, you've got a lot of baby boomers, they don't know what to do, they don't know how to sell the business. They've probably never been through the process before and, and we all know it's challenging. Secondly, I think the multiples are coming down, so I do believe that boomers are gonna have to hold onto their businesses a little bit more, but There's a couple of reasons why businesses can be really hard to sell. Uh, only about 1 in 11 businesses that that try to sell actually do. And, and there's a couple of reasons for that. I think the first one is, A lot of the businesses that I look at, and I probably speak to 50 businesses, you know, every 10 days, and most of the businesses that I talk to, most sellers, they are the business, so they don't really have a business, they just have a job in their own business. If you were to buy that company, all of the knowledge and all of the relationships and all of the processes, they're all trapped. In the mind of the seller, the business won't work without the seller inside it. So the only way that person's going to be able to sell is through a, a deferred payment structure or an earn out, um, because the business doesn't work without that person inside of it. So my one of my biggest tips for anyone who wants to sell a business is you have to separate yourself from the operations of the business. You have to systematize it and have other people like a management team and and processes in that business, that means that. If you're not there, then you don't have to worry about it. So you need to work on your business, not in your business, and I think that's the number one biggest challenge that I see today with with people that are trying to sell and, and that's why I turn down 95% of the businesses that I see. It's not because I don't like them, it's because, uh, they're not gonna work without the seller inside of them, and obviously the seller. Doesn't want to hand the keys over and and have to work for 5 more years, um, you know, they want to sell and they want to retire, um, and, and I think it's a really, You know, really sad thing, um, and it's something that's definitely got to change. That's a really great point, and it brings up another question for me, and that is that if these buyers, let's say they just want to stretch it out, maybe they realize they can't sell it right away, they just want to stretch it out, maybe cash some checks for a few more years and stay, stay involved but back away from some of their duties, they're going to need really strong second in command or key people involved in the business. And those people of course are going to be in demand from other businesses that may not have people like that where, you know, if, if a big percentage of business owners strategy is, you know, if I could just get a good second in command, I can coast a little bit, maybe slow down to a productive jog instead of a full on sprint and last several more years. And earn my way out of this business, if you will. So does that mean that the war for talent continues to heat up and what are some of the things that you like to see that business owners have done to lock in those key people if they have them? Yeah, so, so that's a really good point, and you're absolutely right, and, and what sellers need to do and, and what I do in all the businesses I actually buy, so I'm doing it from the other side is I don't, I don't work in any of my businesses, so I have general managers in my businesses that run them for me and, and I give them percentages of ownership to be my partner to drive that business forward. So if, if I owned a business right now on my own as an owner operator and I was looking to sell that business, um. The first thing I would do is I would, I would either promote somebody internally to be my GM or my COO. I would give them or I would find them from the outside and bring them in. I, I would give them a percentage of equity in some of my deals. I've done 5%, uh, I bought a a marketing company in California and I gave the guy 40% because, uh, he was perfect and he actually took his smaller version. Of the business in in as well so it was like a bolt on and it was great. So bringing someone like that in on board and partnering with them and giving them a piece of equity, it's, it's perfect and what that does is number one, it, um, it, it gives you an exit strategy. So can that person then once they've been the GM for maybe 1 to 2 years, they can go to the SBA uh and potentially acquire. The rest of the shares, um, or what it does is it makes the business sellable, um, because the business is not having to operate solely dependent on the owner. That's very good. That's, that's, uh, that's right, uh. Right in line with what we see here and read in in all of the books, like you mentioned, the EIth is a great book about they get that key employee involved because owners don't leave, but employees can be lured away very, very quickly by someone who will offer them ownership because that's, I think it's really you might agree with this, but it's really what's in the mind of that key employee and the person they report to at home. You know, as far as if they get an opportunity and they're getting phone calls from headhunters and other owners, they're going to share that and say, does that create a better quality of life for our next 1020 years as we as we work through things? It's really, really great to share some of these tips and ideas and strategies with you. Would you say that it's There's one thing I hear from economists these days, and I'd like to run that by you, and that is that you know, we, we were due for a recession, but COVID's kind of taken care of that for now. That was our, you know, that's going to take the wind out of a near term recession, according to the economists I listen to, but they are also preaching, and they're preaching this to large numbers of connected business owners. A 2020 depression, excuse me, a 2030 depression, sorry about that, a 2030 depression. Um, that's that is going to be difficult to avoid because of the demographics, the way they line up with, especially in the US, everybody receiving Social Security and Medicare and really really stressing the The dollar. So, my question to you is, if that's a, if that's a 10 year out uh problem, and the baby boomers in 10 years will be the middle of them will be 70, they'll all be 65, right? So they'll all be 65. That's in the US that's 40 million people. Does that mean the next few years are going to be prime time for buyers looking out there to buy businesses of retiring owners, and where should they start looking and keeping their eye on these owners to find good deals out there? Yeah, so I, I agree with you, and I, I think the next 10 to 15 years, as I mentioned at the start, we're going to see the biggest transfer of wealth in, in the history of the United States that I, I've read in the Wall Street Journal and Forbes, there's going to be a $1 trillion worth of small businesses that are gonna change hands between now and 2035. We're talking 12 million businesses that are going to transact and so I, I do think it's a buyer's market. However, having said that, There are a lot of things that sellers can do to really maximize, you know, the value of, of their business, you know, one of the major things a seller needs to really determine before they sell is who do they want to sell to, and, and really you've got three options when you're selling a business. You can sell to a competitor or a trade buyer that wants to enter your market. Uh, those are longer deals, they're more complicated, um, they're a lot more arduous. You can sell to an individual or an individual team. Uh, it could be somebody inside of your business or a management buyout. It could be an external, um, personal group of people a management buy in, or you can sell to a private equity firm that that not only is going to buy the business but will inject some additional working capital to work to scale it because obviously investors. Uh, they're all about making returns. So I think that's the first thing that that sellers need to determine in terms of buyers looking for deals, there's, there's really 4 primary ways that that a buyer can can originate deal flow. Obviously most people go to brokers, um, I'm not a massive fan of brokers, if I'm honest with you. Some of them are really good. I know loads of great brokers, but Fortunately, just as many are not very good. Brokers are in the market of selling businesses to other businesses. They, they typically overvalue companies without really understanding the dynamics of, of what's going on. But, but brokers remain, you know, a good source of deal flow in, in the right way. Um, what a lot of people don't do when they're looking to buy businesses is they, they fail to build relationships and networks. Some of the best deals I've ever done, both buying and selling. Have come through building networks and you know what's really interesting and I, I, I, I coach my entrepreneur students on this, um, and one of the things I say to them is if you, if you're a business owner and you've decided now's the time I got to start thinking about selling my business. I, I gotta start thinking about the next chapter of my life before you go anywhere near a broker. You're gonna talk to 4 people. You're gonna talk to your CPA. You're gonna talk to your attorney, you're gonna talk to your bank or financier that's financially invested in your business, and you're gonna talk to your wealth manager. You're gonna call your wealth manager and say, hey buddy, I'm looking to sell my business. I think it's worth a million dollars, hopefully you're gonna get a big chunk of it at closing, um, where do I put my money to give me some retirement income? So if you're a business buyer, if you're talking to a networking with those deal intermediaries as I as I aggregate them. You're gonna get really good deal flow and for the most part it's gonna be off market because you're catching that seller before he's decided to to pay the upfront fee unless with a broker. Um, when I started my career back in 1992, you know, we didn't have the internet and the internet today is is our friend when it comes to deal origination. So tools like LinkedIn and even Facebook, I've found some phenomenal businesses to buy. Using those platforms and, and also I'm a big fan of what I call the direct approach. So if you want to buy a business in say the web design industry in Chicago, you can go to Info USA or another tool online and download a list of all of those different businesses, and you can write to them. You can research those companies, write to them in a in a very confidential rapport building way, tell them who you are. Tell them why you like their business, and if you can find anything out about the seller, their hobbies or family or whatever, you know, stick that in the letter and you're building relationships with these people before they even meet you, so. Most people think that to buy a business you've got to go down the broker route and and whilst it's one of the many methods of deal flow, uh, there are smarter ways to find, you know, really good deals, you know, I've, I've never really found a, a, a, a kind of marquee deal through a broker. Um, most of the best businesses I've bought have come through my networks or direct approaches or or leveraging social media. Brilliant, brilliant information for our listeners. I really appreciate you coming on. I wish we had more time, but we're going to have to bounce today. But I want to let our listeners know that they should find out more at dealmaker Wealthsociety.com, find out more information, and check out Carl's blog Confessions of a Dealmaker, right? It sounds like a tremendous place for people to start to learn really from your wisdom and your experience, and I, I really appreciate you coming on today. I hope you'll come back and we can dig deeper because I think we just started to scratch the surface today of your, your vast knowledge of this subject. Thank you so much. Well, thank you, Bill. See you soon bye bye. Thank you for listening to Exit Coach Radio. Men, if you're ready to reclaim your edge, listen up. I used to be held back by constant bathroom trips with multiple wake-ups during my sleep and looking for restrooms whenever I was out. Then I discovered better man. After just two months, I started experiencing fewer trips to the bathroom, less urge to go, and I even slept through some nights. I feel a noticeable boost in my overall well-being. And sexual stamina, it gives me the freedom and confidence to live life on my terms. Betterman is clinically tested and trusted by thousands of men over 25 years. Ready to take back control? Go to Bebetternow.com to order your supply today. That's Bebetternow.com. These statements have not been evaluated by the FDA. This is not intended to diagnose, treat, cure, or prevent any disease. Use this directive. Individual results may vary.