The Biggest Acquisition I Walked Away From

I bought a lot of companies, but I've walked away from even more. Some of the best acquisition decisions that I've made in my career were the ones that we didn't actually acquire that business. There's some quick red flags that you can identify and say, hey, this one might not be for me and here's why. So I'm going to try in this video to help you avoid those pitfalls that I personally walked through as I learned my way through growing an M&A discipline inside our business. I'm John Wilson and I'm the CEO of Wilson out of Ohio, and we're a plumbing, HVAC, and electric contractor serving tens of thousands of homeowners Every month, so let's dive in. One of the biggest deals that comes to mind that I'm grateful that I did not do was in 2022. A business came along and they said, "Hey, we're 12 to 13 million," so it was equal size business. We can grow together and we can sort of merge, and it won't take a lot of cash for you to do this deal. And together, we will like be bigger, be better, be all that stuff. You value businesses based off EBITDA, and what was attractive about this business was it's a big size. It's a big It's a big business, it's a big team, it strengthens one of our trades. And it was $3 million of EBITDA and we were like $1.5 million. And it was a big juicy target. Like, that is exciting. Like, oh my God, like we can come together and we're $4.5 million, maybe with synergies $5 million. And that's a real business with real value. Maybe we can just do whatever. As we sort of like went through, uh, that process, a few red flags started showing up for me early on this deal that despite the economics and me picturing in head how glorious this new future of mine would be, I started just picking apart these and taking them seriously. And we didn't end up doing the deal. The items were one, they said they were a residential contractor, but it ended up being a tremendous amount of the work was commercial construction. The next one was the way the owner talked about the team. This was a red flag that came up in a deal that we did back in 2021. Any time the team came up, they didn't have a lot of great things to say, which was kind of astonishing because at its core, a business is a group of people that are coming together To achieve something greater than themselves. And if you don't have that perspective of your team as an owner, then like, what does that say about the business that you've built? Which, big red flag, because I know that I'm walking into probably a cultural nightmare. And then just cash flow. And this one's a little bit straight, like how much cash is this really gonna take to buy and own? And it turned into, hey, yeah, the reason they wanted to do our deal was because we were gonna save their business and they needed our cash flow to basically buoy their business back to life, which was not something that I wanted to deal with. On the surface, hey, the business doubles. It's easy. It's so easy to start like getting excited about this thing without really understanding, hey, is this worth being excited about? Like, what are my— what's my bullshit checks? You know, like, does it treat the team well? What's the work type? What's the industry? What's cash flow feel like? Over the years, I've looked at hundreds of businesses, and what I've really come to find is that there are not many companies that I actually want to own. But my first 5 deals were hairy freaking deals. I mean, there were deals today I honestly would never have done again, but like we did them and like they're sort of the reason that we're here today. So it's hard for me to like toss a stone, but we've only bought maybe 2 to 4% of the deals because it is harder. It's hard to find a business that fits into your organization the way that you need. So if you're earlier on in your journey, your organization sort of like whatever you want, but now it's a little bit more complicated and it's hard to find them with the qualities that, that you want. In, in a, in a new business. Sometimes the seller's just not ready. The business is not ready. And sometimes the company is like totally fine. It's just not— it doesn't fit your organization. It doesn't fit right into what you've already built. There's something about it that, you know, when you add it, there's going to be a little bit of chaos operationally. You just have to decide if that's worth it to you. For me, not really, right? Like, I have enough going on that it's, it's complicated to just add something random. To our mix. The dangerous deals are the ones that you want to be true. There's actually a pretty public example of this in the industry right now where a business was growing really, really fast and they were preparing to go to market. The growth story was incredible, like unbelievable. And shortly after them starting to sort of have conversations, a new story broke and it was too good to be true. But like there were people that were taking good looks at that business. If they would've done it, they would've lost like $40 or $50 million. It's a big business. This deal, like it was all green flags, like, oh yeah, fast growth rate, right customer mix. It's hard when you want to believe it's true, but just keep digging and you're not looking for a reason not to do a deal, but you do need to understand everything about the company that you're trying to buy. Let's talk about the numbers. There's a couple different ways this can go. One, the numbers can look great, but the whole truth isn't out there. And two, the numbers don't look great, but it's fixable. We can fix it. But what's broken? Is their purchasing broken? Is their marketing broken? Is their overhead staffing broken? Like, what's the thing that's preventing the numbers from being good? But turnarounds are a tremendous amount of work. If I'm going to be dedicating my time to anything inside the business, it has to drive actual value to the business. Otherwise, like, what the hell am I doing? The other one is numbers don't always tell the whole story. And I think you need to dive deeper into marketing. Like, hey, they spend 9% on marketing. Okay, cool. You need a lot more information than that, right? Like 9% on what? So is it Google Ads? Is it radio? Is it billboards? Is it mailers? Like, I don't know, but you got to, you got to dig in and find out because numbers don't have all of it. So numbers don't tell you the whole story and you have to dig in and like let accounting tell you the narrative. Accounting is like, it's a story. You can understand a business by fishing through its story. The numbers is the right place to start and you just have, hey, is it profitable? Yes, no. Then like, what else is it telling me? Is it unprofitable? Yes, no. Is it worth my time? What I would tell someone as they're looking at their first acquisition is you need to nail down like, where are you going to focus? Look at a lot of deals. Ask a lot of questions. Don't assume you know anything. I feel like I'm learning every day. I am learning every day. And don't fall in love with these deals too early because you could find anything inside there. You want to get close enough to understand the real business. Some of the best operators that I know that have gone on to buy businesses spent like 6 months, and instead of like just talking to brokers and whatever, they spent 6 months touring shops, And they met with owners for 2 days and they did ride-alongs in the truck. Some of them, we even had someone on our podcast a couple weeks ago and he like worked as an apprentice and then he bought that company. Pay attention to like, hey, what's the owner doing? Are they working 80 hours a week or do they travel for like 4 months out of the year? You probably wanna buy the latter, right? Like it's not super dependent on that owner. Know what your unique advantage is, uh, but like know what value you bring to the business. The perfect buyer brings the perfect value. to the opportunity. There's so many businesses out there. There's going to be one that fits your skill set. So like, let's find that one. And lastly, and I think this one is probably one of the most important, is have someone that you can talk to and bounce ideas, but they're willing to challenge you in a productive way. Like, hey, here's why this deal doesn't make sense. But you need someone around you that you can talk to that is giving the positive and negatives of what you're looking at. So what I recommend is either someone on your team that's a Really great thought partner or like peers that like join a peer group. We have peer groups on Signal, but like join something where you can ask people like, "Hey, what do you think of this deal?" Yes, no. I've learned a ton over the years from all the companies that we've bought, but I've learned just as much from the ones that we have not. And some of those were painful to lose because we invested in legal or accounting or real time and energy, but they were just bad fits and they would have dragged the whole organization down if we still did it. Don't need every deal to happen; you just need the right one. If you like what we talked about here, make sure you check out ownedandoperated.com. We have a terrific podcast, we have a weekly newsletter, and we have events including our Breaking Five workshop coming up this September.