A presentation by Roland Frasier (hosted by Joe Polish) on strategies for growing wealth by buying and selling businesses. Key points: identify six categories of acquisition targets (media, teams/resources, customer-facing products/services, supply chain, distribution channels, intellectual property); use creative deal structures to buy with little or no cash (seller financing, earn-outs, swaps, asset-based lending, split equity, baseline and ‘pipe wrench’ deals); acquire companies to add customers, capabilities, or distribution; and deliberately reposition or recharacterize businesses to command much higher exit multiples (example: converting a publishing business into software, REIT or financial-services categories increased its multiple from ~0.91 to ~7.73, a 684% uplift). Slides and worksheets are available on SlideShare.
Chapters
If we changed our publishing company to a software or Internet company, it would be worth about six times its current value just because we changed the delivery mechanism to software and became a software delivery company of the stuff we were publishing.
Okay, have you ever thought about selling your business? Or how about buying another business to help you grow yours faster? Buying and selling businesses is often the fastest way to grow your wealth or to acquire the customers or other resources your existing business needs to achieve its goals the fastest. Frequently, entrepreneurs are so focused on generating income that they forget about the importance of also growing wealth. If you are the business, as is the case with many authors, speakers, experts and service based businesses, then your business may be impossible to sell. And if there ever comes a time when you no longer want or are able to be the face of the business, it simply dies. However, with the right strategy and planning, your business can be a huge wealth building asset that grows exponentially through acquisition of other businesses and it can also provide a huge windfall through a sale and exit. Roland Fraser is a strategic investor who has bought and sold over 100 public and private companies ranging from a few million to 337 million in adjusted sales over the past 3030 years. His most recent exit was about three weeks ago to a $453 billion private equity fund for an undisclosed sum, which generally means a whole lot of money. He is currently in the process of selling another business for $10 million and purchasing another $85 million company. He specializes in creative deal structuring and low and no money down purchases where he can add value and sell the businesses he acquires for as much as 200 times or more. And his initial investment. Roland's title is Buy it or Sell It. Please welcome Roland Frazier. Thank you, thank you.
Thank you. So Joe already asked, but I didn't get to see how many of you have bought or sold or thought about buying or selling a business. Raise your hand. That's awesome. So a whole bunch of people. So for you, I have some cool stuff I'm going to share with you some strategies that will allow you to get a significantly higher multiple than the next time that you sell your business. And for the other folks who haven't done this yet, I'm going to give you some pretty compelling reasons to maybe think about giving this stuff a try for yourself. So let's jump in with the difference between buying and selling and holding. So the easiest way I can do this is to talk about the same number that Jennifer talked about yesterday when she gave her amazing talk about Bend over and take it like a man or check the tatas. If you do that, you're going to get an extra 28 years potentially of life. If you do what I'm talking about here, you can get an extra 28 years of income that will help you to live that life in a fantastic and fabulous way. So there's a four step process to doing this. And we'll start with the very first one, which is to decide which types of businesses to acquire. You have to acquire intentionally to be able to exit for the greatest value. And what we have found is that you've got your core business. But if you acquire media companies, if you acquire companies that have resources or teams that can benefit your core business, or companies that sell products or services to your customers or to your business, or you buy your supply chain or you purchase distribution channels or even intellectual property like copyrights and patents and trademarks. These are the six categories of businesses that you should consider acquiring. And I'm going to tell you why specifically in a second. But I want to give you examples of each first. So in these slides, I'm going to give you access to all the slides and you should have a handout that they're in the process of handing out as well. So for our company, Idea Incubator, just to give you an example, when we wanted to acquire more customers for our DIY projects company, our brand, we bought a Facebook page that had 300,000 active members. It cost us 1,500 bucks. We decided that we wanted to do software and develop a SaaS, a software as a service. And so we bought True Conversion, which already had a software dev team, so we didn't have to create one ourselves. When our real estate business wanted to allow our customers to send out direct mail, we, we bought a mail house that was doing $5 million in business, had been in business for 30 years when we wanted to have distribution as a dealer for certain products for our Survival Life company, the manufacturers said you can't be a dealer unless you have a physical store. So we bought a physical store, been around for 20 plus years doing several million dollars in business. Same thing for controlling the supply chain on water filters for one of our businesses. And then when we decided with Startup Jungle, another company that, that we wanted to be able to deliver business plans to our customers, we didn't want to do it ourselves. So we bought a company that already had 128 different business plans and we bought all of these businesses for no money down and some of them no money at all. Okay, no money ever.
Hey, I hope you're enjoying this video. And I want to let you know that I have a new book that's come out and if you'd like to get it absolutely free, there's a link below in the description. Or you can wait till the end of this video or you can Simply go to joesfreebook.com and you can get a copy there.
So I'm going to tell you how to do that in a second. But first, on the worksheet that you're going to get, it's going to look a lot like this and it has all six of these categories. And what I'd like for you to do when you get time is to go through. And again you'll have the slides. So these examples that I'm putting up right now you can use as kind of a reference point. But I'd like you to fill it out with the kinds of companies that could provide these resources to your company. Or if you know specific companies that might be acquisition targets, then include those and we'll talk about the little red boxes and the M's when we talk about selling. Okay, so now we've got that part down. Let's talk about how to buy businesses for no money down. There's lots of different ways to do it. The easiest is you simply have the seller carry back paper and the seller finances it. Another way would be to do an earn out where the future performance of the company determines the price and the payments. You can do swaps where you're trading equity or stock in your existing company or another company for equity in the company you're buying. You can do asset based lending deals where you go in and you finance the acquisition through the company that you're buying's inventory, assets or purchase orders. You can also do split equity where you bring in a partner who's going to provide cash or some other resource to help you buy the company. You can do what we call slips, which are self liquidating payments. And all that means is that the company is basically going to pay for itself. My favorite kind of deal, you can do baseline deals. I know Mike Koenigs is doing a whole lot of these right now, where you baseline the performance of the company where it is, you come in, add amazing magic, it makes more money, and somehow that turns into equity for you. Or you can do what we call pipe wrench offers where you're supplying 10% or more of the customers to a business and you say, hey, I'm not going to continue to Build your brand if I don't have equity in the company, so give me some or I'm not going to continue to send that business. Let's look at how this kind of comes together in a deal that is currently in process for us. So we're buying a $25 million major media brand that most of you guys would have heard of. Can't say what it is right now, but they wanted 25 million for it. I always go to the existing owners and find out if they'll sell their interest and I can buy control without buying the whole company. So I went to one of the owners, Gentleman, owns 75% of the company and said, would you sell me your interest? And he said, yes. And I said, how much? And he said, 10 million. I was like, if I do the math backwards, 10 million for 75% is a valuation of about 13 million. So that's 46% less than I'd have to pay if I went through the investment banker. So I was like, that's pretty cool. And they said, because I can't help myself, would you finance all of that? Would you just carry it back? He said, no, I won't do that. I could only finance 80%. All right, well, this is kind of cool. So for $2 million, I can get control of 75% of a $25 million company. But I don't want to stop there either. So I went to a partner, a potential partner, and said, if you give me $2 million, I know you want access to the customers of this company. I'll sell you 15% of a 25 million dollar company for 2 million cash right now. I said, absolutely. So now I've got control of 60% of this company for no money out of pocket. And this is what you call a once in a lifetime deal. I find that they come around three to five times a year. Okay, so now you've got the business and you hadn't paid a whole lot for it, how can you sell it for more than it's worth? Well, the very first thing you want to do to do that is to find the exit multiple for each profit center. So in the handout that you've got, I'm giving you a list of all of the major industry sales multiples as a percentage of sales. So you can go through that and look up the value of each of the businesses that you put on the worksheet. You can start with your core business. And in the little red box, remember I said we'd use that when we get to this point, you just put the multiple that your business would sell for based on this industry sheet. Okay. Do the same thing for all of the other businesses that you've listed and the types of businesses you've listed, and you'll end up with ranges like I've put here. So now you've got the potential acquisitions and multiple ranges. So the last step is to reposition your company towards the highest multiples. And this is how this kind of plays out. So when I came into ID Incubator, one of the companies that I own, it was a publishing company. Publishing companies sell for crap. They sell for about 91% of sales. Okay, 91% of sales. So I realized that if we changed our publishing company to a software or Internet company, it would be worth about six times its current value. Just because we changed the delivery mechanism to software and became a software delivery company. Of the stuff we were publishing, we published real estate information. And I said, well, if we change this to a fund, a reit, which is a real estate investment trust, then the Multiple is almost 11 times more than the business is worth right now. And then last but not least, our financial publishing business, if we could just turn that into financial services, that's like 31 times the value that it is right now, only because we characterize it differently. Now we're going to have to make a few changes, but not a lot. And so what you want to do is rank the multiples that you have put in little red boxes in order of highest return. So you see that one is like 31 times for services, for financial, and then a fallback, because everything might not be able to be financial services might be some intellectual property thing in the 2 to 8 range, or media, which typically sells in the 2 to 5 range. When you've done this, you can have a dramatic impact on the valuation of your businesses. In 2014, this publishing company that I bought into was a 91%, right, 0.91. In 2018, it's a REIT in a software company, and it's at 7.73. That's a 684% increase in the valuation of the business. Just because we made these changes. You can do this, too. All you have to do is remember to buy and sell for wealth. Buy and sell for wealth. Decide what to buy. Pay nothing down. Choose your multiple. Don't let your multiple be chosen for you. You can choose that. It's the biggest mistake I see people make when they're selling is they just sell it for whatever the multiple of that industry is, you can choose it and then reposition the company for Exit. If you would like a copy of these slides, they're available on my SlideShare. You can download them and take these worksheets that you've got and go and make a whole bunch of money. Thank you.
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