HOW TO BUY AND SELL BUSINESSES (With Ace Chapman)

All right, everybody, welcome back to Investment Fund Seekers. Today we've got with us Mr. Ace Chapman. Uh, Ace, welcome to the show, man. How you doing?

It is great to be here with you, Bridger. You know, we've been able to have a couple of conversations and I've been very impressed with what you're up to and honored to be on the show. Thanks for the invite.

Yeah, I mean, so yeah, Ace, we connected through— we were selling like a mini vault something and you bought it. Yeah, and came through and we, we got on a call and then I was like, hon, I looked you up and I was like, man, Ace is actually a pretty cool guy. Like, you've kind of You've got a big following online. You have all different stuff teaching people about how to buy and sell businesses, do deals. I mean, the whole— and then you've done a lot yourself. And, um, after talking to you about— I was like, we got, we got to bring Ace on the show. This is too good. We got to share this with everybody else. So I'm excited to have you here. Um, so Ace, before we dive into anything, tell us about your story. How'd you get started? And, and to get to the point where you're at, where you're buying and selling businesses, you ran a fund before, buying a lot of internet businesses, international businesses, lots of deals. So Ace is a complete stud now, but it wasn't always that way, right? So how did you get going and get started?

Yeah, so, you know, my story is probably like a lot of entrepreneurs where it wasn't very well planned out. It was kind of happenstance. I was a student at Colgate University. I was studying political science. My plan was to go to law school and eventually get into politics, which now I just think, oh my goodness, I dodged a bullet. But while I was in school, I was a sophomore, and I'd always been kind of a business nerd. And so this is back '98, '99. I was using a stock market simulator and kind of playing around in the stock market, testing out strategies and that kind of thing. And this is when that was novel.

Yeah, where'd you get that from? That's pretty groundbreaking stuff, right?

Yeah, at that point, you know, the average person didn't have access to stock market simulators. So it was this kind of online stock market simulator, it was called Cool Wall Street. They gave out prizes and that kind of thing when your strategies went well. And, you know, as a user, I was just disappointed the site was always crashing. There was a forum on there where they obviously paid no attention 'cause almost every post was a customer complaining about how they can't get in contact with anybody and blah, blah, blah. So I reached out to them to become an intern over the summer. And I, uh, got the response back that, hey, we actually are trying to get rid of this business. We've got another business that's growing really fast. All our focus is there. So if you know anybody wants to buy this business, you can refer them to us and then you can go intern for them. And I'm like, why would I send you a buyer so that I can be a free employee over the summer?

Yeah.

I was very curious just to find out How much money they were making and that kind of thing. So I used that as an opportunity. It's like, oh yeah, like, you know, I'm a 19-year-old kid, a sophomore in university, but I come across people that buy businesses all the time. Yeah, so if you shoot me all your information, then I'll let you know the next time I come across somebody.

So you just posture like, I'm ready to buy this business. That's awesome.

So they send me the information And it was making $60,000 a year and they wanted $70,000. And, you know, I had no idea about valuations or multiples or anything at that point. My multiple was, okay, I can buy, like basically people are paying about $120,000 for the 4-year university that I was in and I have friends that were coming after spending that money and making $30,000, $40,000.

Mm-hmm.

Or I can buy this business for $70,000 and make Like, using that as a comparable, which, you know, you're in real estate, you get comps.

So, a comp against school. I love it.

Yeah, using that as a comp against my degree, it seemed like a pretty good deal. But the big problem at that point was I had $3,000, so it might as well have been a million dollars. I had no way of coming up with $67,000. But it was one of those things that just like ate at me and ate at me. I'm like, man, how can I pull off buying this thing? And eventually got them to finance half of it, had a buddy who came with money who was willing to put up $15 grand that I was in school with, and then I used credit cards for the rest to make up the difference. And that was my very first transaction. And it opened up a whole world. I mean, for me, it was more than just, oh wow, like, you know, I'm making $5 grand a month as a college kid. It was, wow, why hasn't anybody ever told me about this?

Hmm.

You know, that I could go and buy income. And it was this whole transition. It was like, okay, you know, everybody knows that you don't have to build a house from scratch. You can go and you don't even need to have all the money to buy the existing house from scratch. You and 99% of people don't even try to build a house. So you go, you go get the mortgage and you buy the house. Like the average person would never buy a, or try to build a car, you know?

Yeah, yeah.

We go just buy that car and we don't expect to have all the cash. We go and we get a loan for it. And so it was like this transition for me of realizing this is the only place where we feel like we have to build from scratch is when it comes to income. And, you know, nobody talks about the concept that you can just go out, you can buy income, you don't need all the money to buy the income, you can finance it. And, uh, that was just striking to me. And that was kind of the beginning of, of this, uh, what's now been a 20-year career buying and selling businesses.

Hey, I— that's amazing. You're 19 years old, you buy your first business. Like, it— I, I love that. And you're in college now, you've got this whole transaction, you figured it out. So what next? Did the company— I mean, they were trying to get rid of it, right? So what did you do once you got there? What happened next?

Yeah, so I end up buying this business, the income's coming in, and I'm still in college, so I'm running it from college. I go home for the summer, it was kind of a funny thing. My dad all summer, you know, the internet again is just this new thing, so all summer my dad's like, you got to get a job, like, you know, whatever this thing is on the internet, you know, that's not your future, you've got to start building your resume for your future, and people aren't going to like that you were just hanging out, playing on the internet all summer. So we get to, I get to the end of the summer and I had some investors that wanted to invest and it eventually go to my parents and like, hey, these investors wanna invest, but they want me to leave school. And my dad's like, why do they wanna invest in something that doesn't even make money? I'm like, Dad, the business makes money. And which he just couldn't believe that it made real life money.

Yeah.

So at the end of the night, he's like, I think you should stay home. and run this business. And, you know, ran that for 3 years, and then the dot-com fallout happened. And so I'm kind of licking my wounds and really depressed, and that was when I came across, you know, I love the relationship you have with your dad as a mentor, 'cause I think that having a mentor is so crucial, man.

Yeah.

But I was able to meet a guy who flipped hospitals. And he became a mentor. Wait, did you say hospitals?

Yeah, yeah. Hospitals, okay.

Yeah, just, uh, absolutely incredible. I mean, even when he just told me that, I was like, what? Like, people— I didn't even know people could own hospitals.

Yeah, that's what I thought too.

So, uh, he would buy and sell, uh, hospitals and kind of took me under his wing, learned a ton. You know, we were talking about real estate before we jumped on the call, end up buying When I met him, I was working at a bank as a mortgage officer, and he made me realize, like, dude, like, you can go and buy a mortgage company. I'm like, yeah, yeah, obviously. So I go out and buy a mortgage company, I end up buying a HomeVestor franchise.

Yeah.

That was complementary to that. I end up buying an escrow company, and that was when I had that second transition into, oh, I can take businesses that are complementary, and then instead of going out and trying to pay for marketing and take risks and hope that I get an ROI on that marketing, I can pull these businesses together, and when I buy the mortgage company, I take whatever marketing money that they were spending, put that as a down payment on a business that's gonna generate income for the mortgage company and get a great ROI. So instead of it being an expense, now my marketing, my acquisition budget is actually getting an instant ROI in addition to bringing more business to the business that I own. And so, that's been what we've done, uh, since then. I've owned several tanning salons, uh, I bought, um, some Plato's Closets, which is a franchise, some Subways, and, uh, over the last 10 years went back. You know, I got burned by the internet that first. I was just like, okay, I'm not—

Yeah, so what happened then? Did you— I mean, was your credit ruined? Was it— did you lose a lot of money? Did you get out okay on that credit bubble? Excuse me, the dot-com bubble?

On the real estate stuff?

No, on the dot-com bubble. On the dot-com?

Yeah, so it was interesting. That was one of the greatest gifts that my mentor gave me, 'cause I was like, okay, I left school, I don't have a degree, I'm just gonna get this job, be a mortgage officer, and that was gonna be it. And so he had heard that I did this transaction and all of that. And so, you know, one of the first times we talked, he asked me, he's like, all right, so tell me about that deal that you did. And it's like, I bought it for $70,000. He's like, how much did you make over the 3 years? It's like close to $300,000. And he's like, that's an amazing ROI. Like, what are you sad about? Like, why are you stopping this? If you can take 3— like, 'cause it was really literally $3,000. He was like, literally, you took your $3,000 and multiplied it by 100 times over 3 years. Like, that's absolutely ridiculous. That's an incredible success. And it was the first time that I had that transition, 'cause we see entrepreneurship, we see CEOs, we see people who have something, and it's the Mark Zuckerbergs, it's the Bezos, it's the Steve Jobs, and we're like, they have one thing and then they do that thing forever. And so what I did when I bought that first business and then it didn't go that way, I'm like, okay, like, I failed.

Mm-hmm.

And so everything after that became like, okay, how do I get a really great ROI, and that was the beginning of a different mindset. So no, I felt like it was a huge failure at that point, but that was what gave me the motivation. It's like, okay, yeah, like, let's get back in the ring and let's slug this thing out and get some more deals done.

Huh. Oh, I love it. And I love the mindset of— it's almost like if you guys remember on Batman, I can't remember, Batman Begins or Dark Knight, where he goes into the hotel and they're swimming in the pool and he buys the hotel. He's like, I'm not gonna stay at this hotel. I'm gonna buy the hotel, right? Yeah, that's how I think you are, right? It's like, no, I'm just gonna buy the mortgage company. I'm just gonna buy the— which, that's an amazing mindset to have. Very few people have that. That's— yeah, that's incredible. So, okay, so that's amazing then. And you go through and you've been— so you've been doing this since you were 19 years old, raising money, buying businesses, selling businesses, is that right? And done—

Yeah.

The gamut of things.

Yep, outside of those 6 months at the mortgage company.

Yeah.

It was, and you know, it's kind of funny. I think that entrepreneurial spirit, one of the, I ended up resigning, but being forced to resign because I had a, I was working there, killing it, doing really well, and there was another guy that had an assistant. And I go to my boss, I'm like, hey, like, I've got the same income level that this guy has, production, that's kind of what they call it in the industry. And he has an assistant and I don't. And he's like, yeah, seniority, you haven't been here long enough. And, you know, that was my first sign that, like, corporate America is this different beast. It's like, no, like, who cares about how long you've been here? Are we generating the same amount of money? And I'm gonna be able to generate more. Like, I'm generating the same amount as him without the assistant. So I'm just saying, hey, give me the assistant now that I've already passed him with an assistant, and I'm gonna do even more.

Mm-hmm.

And so the guy was like, no. I go back again, I'm like, listen, I'll pay for the assistant. Just bring the assistant in and I'll pay for it. And he still was like, no, like, you're a 20-year-old, 21-year-old kid, like, you're not gonna get an assistant until you've been here longer. I was just like, okay. So I'm passing a building one day that has a for lease sign, and I have what, you know, only a cocky, like, 22-year-old kid idea would be, which was, oh, I'm gonna just rent, forget what my boss says, I'm gonna rent an office and hire an assistant.

That's awesome.

Which is not something I would recommend anybody do it, but I end up renting this office. I bring on a couple of my friends that were now graduating from college, so my high school friends. You know, I'd already been in business for a few years, so I'm like, dude, I can hire you guys. We start killing it, and, uh, but eventually the bank realized that you've got something else going on here.

Yeah.

So that pushed me out and forced me to, uh, become a, a business buyer again. But yeah, so outside of those 6 months, I've been 100% buying and selling businesses. The last 10 years has been mostly buying internet businesses, which, um, was 10 years ago something not a lot of people were doing. It's actually exciting now because there are more people, and so it's created this ecosystem where there are more buyers, more sellers, more transactions happening. And, um, now I'm more investing in other people's deals. So I will, uh, invest in, in people's deals and, and help them get put together the financing and everything for their acquisition.

I love it. So, okay, so, and I know you teach a lot of people now how to do deals. You walk people through that, help people do, do these types of deals as well. So walk me through one of your, like, a deal, right? If I wanted to go buy an internet business, or if you're gonna buy an internet business, what does the process look like for you? What's the framework for doing this? And this could be inside of a fund, this could be outside of a fund, but you're doing essentially the same thing, right? You're raising money, you're getting the documents together, you're buying a business. Walk us through that and what it looks like.

Yeah, so, uh, I'll talk about one of our recent deals, which is a 3D animation studio. So now I, I really serve as an investor, essentially. So we have a, a guy out of, um, New Zealand who was a client, and he was interested in running and buying this business. And, you know, we kind of coached him through the process to get him to the point where he was ready to do his first deal. And we find this business, a $750,000 business that does animation and has 16 employees. The business does, like, very high-quality work. We love the numbers, did due diligence. So, So, typically from the very beginning, you know, on an average month, I'm probably— I probably have a couple hundred deals that just come across the desk.

And are these people actively wanting to be sold?

Yes.

They've been listed by a broker or something? You're not going to just knock on someone's door like, hey, I'll buy you, and they don't even— they're not even trying to sell?

So, we have a lot of sources, but in some cases we are doing that. It's not necessarily just me, but that's one of the things that we train people to do.

Mm-hmm.

So we have this network of business buyers and all of them are going out and they're finding these sellers that are, and basically tell them like, hey, not necessarily I wanna buy your business today, I just want you to know that one day when you do wanna sell your business, I'm here as a potential buyer and I'd be interested so you don't have to go through that headache and process trying to find a broker. And the average person doesn't even know that their business is this valuable asset that they should be thinking of from the point of view of, hey, when is the right time based on my talents, based on my personal circumstances at that given point, that it's a good time for me to exit that business, take that cash, and then move to the next thing? I think, you know, people just have this concept that isn't in line with the reality of 99% of businesses, which is, oh, I'm gonna start something and then I'm gonna do that thing forever. And it's because of that that people don't maximize. I think everybody, and, you know, one of the reasons that I love what you're doing is just like, Like, even if it's just, regardless of my starting a fund, I think everybody should think like a fund manager with their own assets.

Mm-hmm.

And it's, how do I maximize this? Not just, how do I get by? How do I make money? And that kind of thing. It's, what, is this asset maximizing the cash that I have tied up in it? And what we wanna do is bring that to a seller's forefront and say, man, like, Maybe it's you selling it to us. We, you know, we did a deal where we owned a business called Open Rooms that sold hotels. Well, we did a deal with another business called Airfare Watchdog where essentially between those 2 businesses, we have airfare, we have hotel, it's a very complementary business. When you're doing those kinds of deals, it can benefit the sellers for them just to do the deal just to be able to hold equity in this thing that's gonna be much bigger.

Mm-hmm.

The same thing with the 3D animation business. We had an animation business that did whiteboard videos, whiteboard stories, and then we bought this other business called Wiz Motion, which did— which does 3D animation. Now those two are complementary. Same thing, we bought a toilet business and a shower business. So we're looking for these things that are very complementary And, you know, whether it's partnering with a seller to do those deals or buying the seller out, we want to get that business and then take it to another, another level. So we do have people that are going out there reaching out and trying to find those deals. And then we have other, other deals that are referral basis. You know, I have a presence online, so I have people that reach out to me quite a bit. But once we get that deal in, we want to do kind of some initial due diligence just to see if it's if it makes sense and the person isn't completely outrageous. Because we get, you know, out of those 200 deals that come across my desk, maybe 30% of them have some level of expectation which is like not in touch with reality.

Yeah.

And then we come up with some kind of deal structure that works for everybody, and eventually a part of that is going to have some seller financing involved. And in that particular deal, I ended up investing Uh, about $300,000 into the business as a part of that $750,000 transaction.

Okay, really cool. Now we just have a few minutes left. Really quick.

Yeah, I saw the time ticking down. I know, fast, man.

It's going super fast. So real quick, I want to ask just one more question, then we'll wrap up. Is for someone starting out, how do you build— just the newbies, right? Build that network, find the cash. When you did your first couple deals, or even for students you help now, what's your advice, quick advice, maybe 1 minute, on someone just starting out to, if they want to, I guess you'd say, follow your formula that you've created?

Yeah, I think a big part is you got to bring something to the table. If you're somebody that has experience in a particular industry, that's really valuable. You can bring that to the table. If you're somebody that just has some hustle, then go out and find the deal and bring that to the table. If you're somebody that's really great at building relationships, it doesn't have to be your money. I think, you know, as I travel, we were just talking about the fact that I'm in Buenos Aires and I was just doing a deal in Bogotá. And, you know, as I go all over the world, the biggest buildings in every city that I land in are banks. And for some reason, again, you know, it's kind of one of those things that we're not taught when we're young, is like, just to be an investor, It doesn't have to be your money, and I think that's the huge value when it comes to these funds, is that you can go out and be that person that builds relationships with accredited investors, with wealthy individuals that don't have the time to do due diligence on deals, and then that's what you bring to the table. So, uh, it does take some work, but, uh, those are— one of those 3 things is what I would choose if I were starting from scratch.

I love it, Ace. So, in closing, how can people connect with you, learn more about you, your programs, what you do?

Yeah, check out acechapman.com. I'm on, uh, Instagram, uh, ace.chapman, but the easiest way is just search YouTube. Uh, we've got a lot of just free information. Um, you know, it's, it's a lot of fun to connect with people there.

Awesome, Ace. Thank you so much for coming on. Appreciate kind of a shorter interview but jam-packed of value. I love it. Maybe we'll bring you back in the future too. So yeah, thank you so much. Connect, I'll drop the link Below in the description so people can go and see them. But thank you so much.

Thank you. Thanks, Bridger. I appreciate it.