This week’s Misfit Entrepreneur is Carl Allen. Carl is an entrepreneur, investor, and one of the most prolific corporate dealmakers in the world. Over his 30-year career, he’s done over 330 deals worth over $48 billion.
Carl has analyzed thousands of deals, large and small, across dozens of countries and nearly every business sector. And because of his experience, he’s brought in to advise some of the world’s largest corporations on investments and acquisitions.
Recently, he’s launched a new venture, the Dealmaker Wealth Society, a platform that teaches people how to use Allen’s techniques to purchase and sell businesses.
Needless to say, Allen is the go to for how to successfully buy or sell a business and he was the perfect guy to come on and discuss the topic.
Carl started back in 1992 when started working for the investment banking arm at Bank of America. He was helping to buy and sell businesses for the Fortune 100. He then had a brief stint in private equity investing in tech company that was bought by HP. As part of the deal, he became one of the M&A directors at HP buying and selling businesses all over the world. He spent most of his time on the road, granted he loved it, but he spent a lot of time away from his wife.
In February 2008, he life completely changed in the matter of 24 hours. He was in Moscow doing a deal for HP in a boardroom and keeps getting calls from his wife. He finally stopped and answered the phone and his wife told he needed to be back to the UK immediately because she had gone into labor 4 weeks early with their son. He had his wallet, phone, and passport on him and ran out of the building leaving his luggage behind, sped to the airport, and when he landed in the UK, he had a police escort waiting for him – and he got into the room 5 minutes before his son was born.
When he cradled his son in his arms, looking at him, he burst into tears. He knew he couldn’t do it anymore. He called up his boss at HP and quit leaving behind millions in stock and bonuses and decided to retire.
3 weeks later, he was bored beyond belief and knew he had to do something. He sat down with his wife and she helped him understand that he could be a local business broker.
Within a few days, he had his first deal. He found the buyer; things went on for about 3-4 months. The night before the deal was to close, he got a call from the seller, who he represented – they had decided to pull the deal. He left immediately to meet with the owners and got to the business where they had assembled all the employees. They told him the buyer was going to fire the employees and essentially gut the business and they could not allow that. In a half-crazy moment, Carl looked at them and said, “I will buy the business.”
At the 10:50 mark, Carl goes on to tell the story of how bought the business and ran it with no experience. What makes a great deal for both the buyer and seller?
- There are 3 criteria
- Buy a business that you know something about, are passionate about, and can bring something of value to it.
- You want to find a distressed seller of a good business (not a good seller of a distressed business).
- A distressed seller is someone that has a very big incentive to leave the business, whatever it is.
- You want a business that is finally strong with good cashflow and assets (if applicable)
How does someone go about finding a deal?
- There are 4 ways to generate deal flow (and deal flow is the holy grail)
- Business brokers like BizbySell.com, Benchmark, and others. Typically these will inflate values.
- Look for a deal that has been open about 9 months.
- You can build a network pretty easily by talking to CPA’s, Attorneys, Banks, or any other professional that works with businesses.
- Direct approach. Go to InfoUSA, Hoover’s, etc. and do a search for exactly what you are looking for and then write to them in a highly confidential way.
- Leverage the power of social media.
What are the most important factors to look at when looking to buy a business? What do you need to do if you are looking to sell?
- Small business deals are 90% about seller psychology. You have 2 identical businesses and the valuation and structure of the deal can be night and day different.
- You will pay more if a seller is not motivated.
- Most businesses are valued on a multiple of their profit.
- The average of $1-10 mil business sold in 2019, the multiple was 2.5-3x profit. So if you have a $1 mil business, then that means it would be worth $250-300k.
- Multiples will be higher for tech and fast growth businesses.
- How do you value a business? There is an accounting answer, but then there is the terms and structure of the deal. For example, if you can buy a business out of cash flow over 4-5 years, you may be willing to pay more for it vs. everything being paid up front.
- One of the challenges for people looking to sell a business, and this is most important – the only way you are going to sell the business quickly is if you separate yourself from the business – meaning you are not needed day to day for it to operate and grow.
What is the blueprint to buy a profitable business in 99 days or less?
- 10 steps
- Step 1 has nothing to do with dealmaking. It is mindset. It comes down to a person’s why. Nobody wants to own or buy a business – we want the deep emotional benefits that business ownership gives us – freedom, cash flow, legacy, assurance, etc.
- Step 2 – Creating a deal spec. Define the 3 pillars for yourself and finding the perfect business to buy.
- Step 3 – Deal origination
- Step 4 – Go through how to build a great relationship with the seller and get them to want you to be the one who buys from them. Know, like, trust.
- Step 5 – Valuing and structuring the deal
- Step 6 – Negotiation
- Step 7 – Financing
- Step 8 – How to close, LOI,
- Step 9 – Deal team
- Step 10 – What to do in the first 100 days post-closing.
What are some of the things to do in the first 100 days?
- Administrative stuff
- Change all the passwords in IT
- Change bank accounts
- Spend a lot of time with the people and learn how to improve and better the culture.
- Get feedback from the team and customers
- Improve how you manage the working capital.
Purchasing a business with no experience or no money – any tips?
- Know your why before you do it. What is the deep emotional reason? This gives you the fuel to follow through and make things happen.
- Stay in your lane. Buy something that you have experience in.
Where are you seeing the opportunities in right now? What is the trend?
- Online, manufacturing/engineering, etc. is booming
- Brick and mortar is down and the trend is away from it.
- People going into Covid with business have done 3 things:
- They’ve taken advantage of opportunity and growing
- They’ve put their head in the sand and refused to adapt.
- There are some that have continued as it and have not been affected.
- If you can buy a business that is struggling a little and can turn it around, then there are good opportunities.
Best Quote: Nobody wants to own or buy a business. We want the deep emotional benefits that business ownership gives us – freedom, cash flow, legacy, assurance, etc.
Carl's Misfit 3:
- Buy a business in a sector you know, love, and understand and that is established vs. doing a startup.
- Live with passion and do something you really love and care about. Life is too short.
- Fall in love with your customers, not your product or services.
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