The Art of a Thoughtful Deal

We talk about it all the time – the importance of the WHY.

Know what your seller wants… and you’ll be able to structure a deal that meets their needs – and yours.

Not every deal is perfect… But if you, the seller, and any advisers involved all walk away winners, that’s a pretty good day at the office in my book.

Now let’s talk about an offer I made this week…

One that had the sellers jumping for joy and appreciation.

Even the broker was thrilled.

All thanks to my strong rapport… good listening skills… and a creative offer.

Before I tell you about my offer, let me set the stage.

The sellers of the business I want to buy are not the type I normally see… These aren’t our typical 60-plus-year-old distressed sellers who are looking for an exit to move on to the next stage of life.

These two women are in their 40s. They are smart, hard-working women with families, ambitions and a lot of success already under their belts.

Remember, buying a small business isn’t a pure numbers game – it’s about psychology.

So I had to know…

What would compel these two successful entrepreneurs to sell?

Tragedy.

Unfortunately, one of the sellers is dealing with her spouse’s terminal diagnosis. A slow one, at that.

Gut-wrenching. When I found out… my heart sank.

Before all the pain and suffering started, they were looking forward to a bright future in the amazing business they had built.

We’re talking around $2 million in annual revenue, with adjusted earnings of close to $400,000 per year.

This wasn’t like any other deal I’d normally consider… and the business was valued a bit high in my opinion.

It’s a direct-to-consumer business, which Carl and I typically avoid – for a lot of reasons.

But I wanted to make the numbers work for everyone. Which I did. In such a way that the sellers and I will both walked away feeling like we won.

Not to mention the broker.

Here’s what I did…

First, I built an incredible relationship with the sellers. I wanted them to understand that I had a bigger vision for their future than they did. One they couldn’t even see.

I told them I didn’t want to take all of their business away from them.

Realizing their time will be limited as they deal with the incredibly difficult road ahead, I wanted them to stay on as owners and visionaries – to continue to shape and grow the business without the drudgery of managing daily operations.

I also considered their ongoing needs – cash flow and access to health care. Obviously, those would be wildly important.

So I built a deal that would meet their needs while satisfying mine as the buyer. (And, of course, take care of the intermediaries.)

This week we agreed in principle to a four-part deal:

1. An eight-year seller note for 80% of the business, paid monthly, with only the first payment due at closing.
2. Base compensation PLUS health benefits.
3. Commissions on the revenue from some unique work they will do.
4. I will pay for the broker fee (8%) for them in full.

Let me tell you – the joy on their faces… and expressions of appreciation… were real. And frankly touching.

But I can’t take all the credit.

You see, I approached the broker about doing something nice for these two in their situation. He listened to my pitch and agreed to allow me to increase his fee in exchange for paying him over 30 months.

I needed a strong relationship with him in order for that final piece to work. That’s why you want to start building rapport with contingent-fee advisers early…

Otherwise, these women would owe him nearly $80K at closing (which my nonexistent closing payment wouldn’t cover!).

The business itself will pay for 100% of this deal. A true no-money-down leveraged buyout (LBO).

And everyone is walking away a winner.

These deals DO exist. And you can still do right by people.

Two families secured by the anticipation and expectation of future cash flow….

A broker who saw the bigger picture and was willing to be flexible will still get paid…

And, of course, yours truly. I should walk away with free cash flow in excess of $200,000 per year as a result of this deal.

Not a bad place to be.

Remember…

You’re only one deal away,

Adam Markley
Co-founder and publisher, Dealmaker Wealth Society

P.S. Carl and I are hosting a LIVE mailbag tomorrow on the Dealmaker Wealth Society YouTube channel. If you have a question you want answered, send it to [email protected]. And tune in tomorrow afternoon at 1:00 p.m. ET sharp. See you then!