Ep. 105 - Million Dollar Reality Check: The Brutal Truth About Selling Your Business

"Ever wonder why 95% of business sales happen with buyers you've never heard of? Welcome to the wild world of M&A, where timing kills deals and ego can cost you millions."

Meet Jacob Koenig, a former Goldman exec who's flipping the script on how businesses are bought and sold. Fresh from spending 15 years in Asia's financial trenches, he's now dropping truth bombs about what really happens when entrepreneurs try to cash out their life's work.

Here's the reality check you didn't know you needed: If you're waiting to sell at your peak, you've already fucked up. If you think you're irreplaceable in your business, you're probably unsellable. And if you're trying to sell your business alone? You're likely leaving millions on the table.

But here's where it gets interesting - Koenig's not just talking theory. He's sharing real war stories about companies that got retraded into oblivion and others that sparked 100-bid bidding wars. We're talking about the nitty-gritty of what makes businesses actually sellable, and spoiler alert: it's probably not what you think.

This episode is a masterclass in M&A strategy, packed with insights about:

• Why your ego might be your biggest obstacle to a successful exit
• The truth about timing your sale (and why most people get it dead wrong)
• How to create an auction environment that puts millions more in your pocket
• The real reason most solo-attempted sales crash and burn

Whether you're building to sell, thinking about buying, or just want to understand how the big money moves, this episode's got your name all over it.

Want to dive deeper into the world of M&A? Check out Jacob and Woodbridge: LinkedIn: https://www.linkedin.com/in/jacobkoenig/ Website: https://woodbridgegrp.com/ YouTube: https://www.youtube.com/@WoodbridgeInternational

Don't just listen - engage. Hit us up with your questions about selling your business, deal structures, or anything M&A related. Let's build a community of entrepreneurs who know how to play the long game and exit on their terms.

Time kills deals, but knowledge builds empires. Let's get you educated and ready for the biggest deal of your life.

As always we ask you to comment, DM, whatever it takes to have a conversation to help you take the next step in your journey, reach out on any platform!

Twitter, FaceBook, Instagram, Tiktok, Linkedin

DISCLOSURE: Awards and rankings by third parties are not indicative of future performance or client investment success. Past performance does not guarantee future results. All investment strategies carry profit/loss potential and cannot eliminate investment risks. Information discussed may not reflect current positions/recommendations. While believed accurate, Black Mammoth does not guarantee information accuracy. This broadcast is not a solicitation for securities transactions or personalized investment advice. Tax/estate planning information is general - consult professionals for specific situations. Full disclosures at www.blackmammoth.com.

Chapters

• 0:46 Meet Jacob Koenig: From Goldman to Woodbridge
• 2:11 Understanding Mergers and Acquisitions (M&As)
• 3:02 The Cost and Value of Hiring a Broker
• 5:36 When is the Right Time to Sell?
• 8:01 Woodbridge's Unique M&A Process
• 16:20 Advice for Buyers and Sellers
• 19:49 Impact of Interest Rates and Elections on M&As
• 22:09 Final Thoughts and Key Takeaways

Transcript

Stoy: 0:07

All us entrepreneurs want to do one thing typically at the end of our careers, right? And that's sell. That's the point of being in business is to take care of your products, services, whatever. And then your retirement is to sell your business. Today, we got Jacob Koenig on and Woodridge and he's going to tell us all about this. A lot of you may or may not have known what M&As are, or how all of those work, and today we're going to get into some of those details. Like always, if you do reach out, we might have to go to another episode and go deeper, because there's a lot of moving parts to that. But without further ado, Jacob welcome, welcome to the show, and I'm excited to get diving into M&As. Absolutely,

Jacob Koenig: 0:43

Good to be here and always happy to chat with you. So let's first start with how'd you get into the space and why did you get into the space? Sure. My, my career has been all over the place. I started at Goldman in Asia. I was in Tokyo for 12 years and then in Taipei. For another three running the the sales trading team out there. Look, actually Woodbridge is a family business. My, my father started it in 93. So 31 years ago now. And so he and I had been speaking, the company had been growing so rapidly over that period and frankly, from the period of the pandemic, it really has reshaped the industry. And allowed a company like Woodbridge who has a different take on how this whole M& A process can work and how to make it work better for people. Those who are selling their companies. So it, it became too good to pass up. And and I came over here two and a half years ago now and a similar kind of the title, at least I was running execution services as it was called at Goldman and now we're we're on the execution side, the deal closing team here at Woodbridge. And there's a lot of differences, a lot of similarities between the stock brokerage world, the sales trading world and and the M& A space, but where it is similar. Is matching buyers and sellers and being able to take this huge potential, relationships of who could be a match on both sides. And and getting that into a place where you can actually make a decision, have an auction and find the best partner for for your company. Absolutely.

Stoy: 2:11

And let's dive right into it, right? Yeah.

Jacob Koenig: 2:13

What

Stoy: 2:13

are some

Jacob Koenig: 2:14

misnomers that people have

Stoy: 2:15

with M& A space?

Jacob Koenig: 2:17

Yeah. Yeah. I think the first one, a lot of people who have A lot of their ego tied up in, in a company. We'll come out and say, look, this is how important I am. This is what all the things that I'm doing. This is how great I am. And not enough focus on the company and how it can run without you. Cause if you're selling it, eventually there's some transition here. Even if you are staying on and it does happen a lot where the owner will stay with the company for at least some period of time, but there is at least some view of, When you'd be transitioning away to be able to show demonstrate, look, I can take the time off from things and and the company still is operating, still growing, even without my direct involvement. I'd say that's probably the biggest misconception that we have to address.

Stoy: 3:00

What about the. What about the cost of M& A, right? Why would I go hire a broker, deal with the whole situation? Yeah, why would I do that when you guys are gonna take 10 20 percent when I could just go do it myself? Yeah.

Jacob Koenig: 3:13

No, I think it's 95 percent of the deals that we do end up with buyers who are our client has never heard of before. Especially in the lower middle market space, there are literally hundreds of thousands of potential buyers. When you're doing it on your own, you're also more susceptible to some of the negotiation tactics that can maybe trip you up. We like to say, when you have one buyer, you have no buyers. The fact is all the leverage is going to be on their side at a certain point, especially. And we've seen this from a lot of our clients who have come to us after trying to sell companies on their own is. We got to to a certain point and then we got retraded and then we were so pot committed at that point. We weren't going to back out until yeah, finally got to a point where we had no choice. And so trying to do it on your own, you have to be focused on running your company. If the company starts to have negative performance over the period of negotiation due diligence those tend to be deals that don't work out.

Stoy: 4:10

Yeah, absolutely. I want to go back to what you had talked about of the ego person or in general, a business that is so keen on the owner running it, sales whatever role it is, if it is solely on them we run into issues, right? Ultimately, I don't want to buy a business if I have to buy you and you're on your way out. I know when you leave, it's going to take a hit. What can you say to people who are either starting their own business or buying one in regards to that relationship and how to structure it correctly on the front end and make sure the business can operate as a business regardless if the owner is needy.

Jacob Koenig: 4:46

Yeah. Obviously choosing the right team around you is Paramount, that's going to be the number one thing and having those right people with the right responsibilities, but also having the structures and that, that mindset from the beginning of I'm creating a company that, that's built to, to last, that's built to continue to operate perpetually. And so what does that require? If it's things that cannot be automated by a machine, then it's things that, that can be taught to a person and things that where responsibilities can be. Separated and and taken to a point where, yeah, you have that team really running things. And and yes, you're always going to need that visionary, at least someone who can keep everything together and keep things perpetuating. And then you can be at a point where, okay, those responsibilities too, can ultimately be transferred.

Stoy: 5:35

What would you say? So okay, I understand we can maybe teach some people we got all of that stuff, but like how do I know when to start looking to sell? Yeah, obviously we'd all like to sell yesterday at two to 10 x, like fantastic, but like realistically in my whole growth or my whole entrepreneur journey, when should I realistically be like looking into it or, yeah. Or how's that process work?

Jacob Koenig: 5:58

Look, I, there's no magic formula, but I would say this is if you try to time it where you're top ticking the market or top ticking your business, it's almost always going to result in heartbreak. The fact is people, buyers can smell that. There's, we saw. For instance, a couple of years back, we had a company in the metal space and they were very sensitive to the price of metal and sure. When the price of metal was high, they were doing tremendous business and they would refuse to look at any bids that were coming in at a sort of a normalized basis from where those prices were. And we just, we were never able to get anything going for them. And so I think that the mistake that a lot of people make is waiting too long. I, a lot of the sellers that we speak to, people who have been running their business for many years, decades, sometimes, and they've gotten to a point where I've grown this thing as much as I can. And I I need some help. I need some fresh view to really get to that next level. And those are the ones that are going to be successful where you've, you're still have some level of growth, even just naturally. But you're looking for that. Yeah. Big next step where you've already started to decline and you're starting to say, I don't want to do this anymore because it's falling apart. That's a bad situation. So always be thinking about. How a buyer is going to be looking at things, which is they're going to want to buy a growing asset, an asset that, that they can step into your role and be able to step on the gas and keep it going.

Stoy: 7:28

And a lot of that is emotions, right? I'm sure you have emotions, top to bottom with all these deals and ultimately you as a business owner, I need to understand. And I don't ever say anymore, remove your emotion. Understand the emotion and understand what you're going to go through so you can make the proper decision for you and your family or their legacy, whatever your end result is, because ultimately, if you don't, that ego comes into play, right? It's my baby. It's worth more than I think it is, whatever the situations are. Those come up. What is the process of, I know it depends on industry and all these other moving parts, but can you generically speak about what an M and a process looks like with the bridge, like relative to what the costs look like, how long does this thing

Jacob Koenig: 8:15

take, all those things that everyone's always going to ask you. Perfect. No, I love this question because this is also a point where I think Woodbridge is particularly differentiated because our process is a bit more is more unique, frankly than a lot of the players in this space. Like everyone else, we're gonna, we're gonna take you on as a client and we're gonna make a SIM a company in information memorandum, make sure that we're. Getting all the good points around what your company is, how it makes money, how it's going to grow, we're going to add on to that. And this is where we're different. We have a video that goes along with all of our sims. If a picture tells a thousand words of video tells a million words and we've found that's been tremendously successful two to three minutes. Long enough to tell the story, short enough to not lose anyone's attention. It's absolutely critical. And and having that education out front as well, of this is how buyers think, this is the types of things that you're going to encounter through this process, walking through term, some of the idiosyncrasies networking capital and how these things are calculated, this type of stuff. First step, get all the materials prepped, get the information, Ready to go step to create an auction. And this is again, where we're Woodbridge is unique. We don't just go to our Rolodex and talk to the people we think are going to be the best buyers. We recognize the fact that again, in this space, it's fragmented. There's literally hundreds of thousands of potential buyers. We have to go as broad as possible. And we have. A teaser that's sent out not enough information for anyone to know who you are or what it is that, that we're representing, but enough to get people interested to say, okay, I'm willing to sign a non-disclosure agreement, an NDA, get the book and learn more. And so where I think the average a advisor out there would probably get you 20, 30 books out and think that they're doing pretty good. We get hundreds, 400, 500 sometimes books out. And yes, that results in a ton of interest, a ton of bids that come in. And so the first step is the, what we call an IOI, an indication of interest. That's where we vet. And frankly, on a hot campaign, there can be 50 bids, a hundred bids we had on one recently was a new record for us. You're not going to meet a hundred people that, that no one's going to do that. No one's going to ask you to do that. So we'll vet them for you. We'll get the cream of the crop in front of you. Then there's a decision of, okay, who do we want to actually sit down and meet with? We have those management meetings with we try to keep it to five to seven groups. That's really the ideal number from that perspective. But having that data, having that full list of bids gives you an idea of, all right, this is the, really the market speaking. It's as much price discovery as you're going to get for an illiquid asset like you're a privately held company. And so that gets us then to a point where we start soliciting for LOIs, the letter of interest. Which it's a non binding document, but it does lay out the terms and the structure of a deal. Most deals that we do are not going to be a hundred percent cash. It's not going to just be here's 5 million. Go off into the sunset. There's oftentimes what we call equity roles, a percentage of the company that you would hold on to. 10, 20% the normal range. Up to 40 percent we've seen there's earnouts, there's different structures like that, where, okay, we'll buy the company for 5 million up front, and then we get another million dollars if you grow by 10%, and another million dollars if you grow another 10 percent the night, year following, things like that and also seller notes seller financing, Where you can step in as the bank where we're getting interest payments on debt that they owe to you. So it's at that point, we're comparing those structures, comparing the LOIs and finding you the best part. And actually we have one right now where it was a tremendous auction and we had so much interest that we just kept pushing and we got all the LOIs to the point where they're almost identical. And so the four best groups have almost the same economics in front of us. And now it's just a matter of. Who do you like the most in who's the one who you can see actually running the company with and stance, putting them in the position to take over for you. And once the LOI is signed, I'm going long here, but once the LOI is signed, that's when the due diligence process starts, you're going to want to, most buyers, most of the time are going to ask for exclusivity during that period so that you're not soliciting other buyers while they're doing their homework. Because It's a privately held company. You don't have reporting standards like the the New York Stock Exchange is going to have. They need to be able to dive into the numbers, understand how the accounting works, understand, what the levers that they have to pull and also the integration work that's going to have to be done, how are we going to migrate your HR systems and and get logged into your tech platforms and so on, and so all of that. Usually the industry average is somewhere between, I don't know, five and 10 months. We always try to do it in two. 60 days is really the goal we've had as short as 35 days. 33, I believe actually was the record. And and that's really what we say is time kills deals. Once you're under diligence. You, as the seller, want it to move fast. The longer it goes, the more that accountants and lawyers are going to dig their teeth in and try to find things that are nonsense, but get them paid. And putting that pressure on the buyers to keep things moving, to not delay, not allow for delay tactics and again, so that. Business owners can keep running their companies, focus on keeping the numbers up so that we don't have any issues and can get you get you paid for the company.

Stoy: 13:42

As a seller, at what point in this process for you guys and then industry standard, when do I, what do I pay for? How do I pay you? How do I, what's the typical for industry and then you?

Jacob Koenig: 13:55

Yeah, I think it, it does definitely depend on the advisor. We charge an upfront fee and then we charge a fee at the end. So a percentage of the deal fee is how we get paid. That's really the majority. The upfront fee is really just to pay the costs, to get the book prepared, to get the video filmed and so on. A lot of M& A advisors do charge a monthly retainer where you have to pay each month. We think that kind of creates a perverse incentive. Yeah. Because then why we don't want this to end, right? It might

Stoy: 14:22

go faster.

Jacob Koenig: 14:23

Yeah, exactly. And so that's at

Stoy: 14:24

least how we do it. Yeah, it makes sense. You're putting a lot of work in on the front end. You even get the book going to get all this stuff. And really at that point they can say no and back out anyway. Exactly. And then you've done all this work. So that does make a lot of sense. And usually everything's a percentage of whatever sale is. So that's not abnormal. Yeah. That for sure. What have you seen I guess what's currently hot topic or hot industry in terms of and how many of these things go in cycles?

Jacob Koenig: 14:52

Yeah. Yeah, no, it's, it definitely is interesting. We've seen, value ranges again, most of the time companies are being valued as a multiple off of EBITDA. So the earnings before interest tax and depreciation and amortization. So that's generally how the industry standard is to gauge. The value of a company and we definitely have seen lower multiples on industries where you'd expect to see lower multiples, retailers the ones that have heavy exposure to where there are not contracts, things like that, where it's just a bit sticky, a lot based on personal relationships. Those generally see a lower range of multiples. We've seen an, definitely an uptick in in interest in like pet care and things that are recession resistant. Where people are going to be, spending money on their makeup and their doctor's fees, regardless of how the macro economy is working. Those are the industries we definitely have seen an increase in interest in the past few months. And that one that, that we were talking about that had a hundred bids that was in in the pet care space. Which

Stoy: 15:54

is

Jacob Koenig: 15:55

a whole

Stoy: 15:55

different topic, but it's just crazy to me how well pet care does. Our neighbor owns a couple of facilities here and then in Arizona, and she's I just can't stop growing. And I'm like, this is a crazy thing that's going on. Apparently that's more

Jacob Koenig: 16:09

than some other.

Stoy: 16:11

So that's

Jacob Koenig: 16:11

Maybe a post pandemic type of we love our pets more and we probably accumulated more and more throughout

Stoy: 16:18

the pandemic. That makes a lot of sense. What if, what about the buyer side of things? How do you work with buyers and create your list and blacklist and all those things? Is it open for other outside investors to be involved?

Jacob Koenig: 16:31

Yeah, no, that's a great question. We specialize in selling companies. So we, we don't take buyers on as clients, but we do interact a lot with them as you would imagine. So we have actually a separate team that works With the buyers to get them the information to, to solicit the IOIs, to get more bids. And they're solely focused on getting as many bids as possible. And then we have our closing team that I oversee where we're really the counterparty to the buyer. And so we maintain that relationship. So we don't have that. Conflict, a lot of the space I think does get to a point where you're friends with the buyers. You're trying to do them a favor all the time. And, they're always asking, can I get additional insight here or X, Y, Z. But what we do learn, especially on these hot campaigns where we have a hundred bids is, okay, if you want to be considered, you have to show us your proof of funds. We don't want to get under an LOI with someone just cause they have the highest bid if you don't actually have the money to make this happen and we're just going to be sitting around waiting for you to get enough of your buddies together who are going to add equity into this deal, that's not a good position to be in. And frankly especially in 2023, when the bank stopped lending, we were looking at who can finance deals without going to a bank. That, that was a big part of it. So the advice to buyers is be transparent, be open and, show us what you have, who you're dealing with. If you do have sponsors that are backing you, bring them in with you. Let us talk to them that, that level of transparency and insight, that's going to give you a leg up. That's going to make us much more comfortable putting you in front of our clients. Because again we, we want to just trust, but verify.

Stoy: 18:09

Absolutely. Are all businesses and all industries sellable? Are there any that you're like you just right now say, Hey, this is really tough to do.

Jacob Koenig: 18:19

Look, the vast majority of clients that we have, we're going to get them done. Whether it's on the first round or not is a different question. We definitely will go back to market. And what we found is when we bring companies back to market. We get a whole different set of buyers, which is really interesting. And you might not expect it, but timing is definitely a big part of it. Don't get despondent if it doesn't work out the first time. We will find the right buyer eventually. I think the right buyer is out there for sure. Any company that's not doing anything, fraudulent or otherwise, as long as you're upstanding and you're honest, transparent, and you're running a business that's making money, we'll find you in the match. I really do believe that it is harder when it's retail. It's definitely harder. As we said when there's a lot of reliance on personal relationships, handshake deals. But that doesn't make it impossible. We can find a buyer who wants to step into that role and wants to be trained. It's going to mean that you're going to have to stay along with the company for a longer period of time. There might be some structure to the deal that, that incentivizes that. But certainly there, there's a way, there's a way.

Stoy: 19:22

There's always a way that I love that sentence. I tell people that all the time, cause within their own personal wealth journeys and their business wealth journeys, like they always think this is it. It's all I got. It's no, there's always a way. We can always figure out a way. It might be beneficial. It might not, but there might be, there's always going to be that way. What I was just going to ask. All right. So we figure out there is a way there's really every industry is open. Let's hit upon something to just happen today. Now we're filming on September 18th. Oh yeah. And it just got cut. Yeah. What an hour or two ago. Yeah. And so I'm going to expect, I've told my clients this, that, Hey. Through this year. Let's get through the presidential election deals will be had There will be a lot of deals coming down the pipe for two reasons one Any political and presidential election. It's everything's always like a hold my breath wait and see Although it really never matters at the end of the day, but like they always do that board cash But also we've had high interest rates and now we're just marketing back down what can you tell people right now and it doesn't really have to be like Specific advice, but general advice with either buying or selling now that interest rates are coming down now that the election will be coming soon. What do you expect the next, last quarter of 24 and then Beginning of 25 to start to look like the deals.

Jacob Koenig: 20:38

Yeah, no, I definitely think this is going to help the market. No, no question about it. And the lower interest rates are again, it opens the door in the same way that we were looking for buyers who didn't have to raise debt in 23, because the banks weren't there. Similarly, the buyer pool then widens even further once the rates come down and it's easier to get access to that capital. So definitely expecting. Multiples will start expanding again across the board and and we will see more and more again, competition for each each company, which is always the biggest driver. So definitely expect that. That being said though, even in the past year, we've, we haven't seen interest weighing. In fact, because in part 23 was a little bit of a slow year with all the uncertainty in the economy. You had a lot of pent up demand and private equity groups who are, most frequently the buyers of privately held companies nowadays are mandated to get their money and use it, if they don't use the money, if they don't deploy that capital, they have to oftentimes give it back. And so what we did see a lot of was, all right, we're going to, we're going to buy this company, all equity, and we'll finance it with additional debt later on. And so I, I think that we'll see maybe a bit of that coming back around where the debt is now being done. At the same time as the transaction.

Stoy: 21:56

Yeah, I agree wholeheartedly. Yeah, you'll see that across the board, obviously M& A and business is a little different than real estate, but they're very similar at the same time. And so you're going to see a lot of movement with that as we wind this down. And obviously we could go for hours, but I always ask every guest this one question. All right. This whole podcast is designed to help people take that next step in their journey, wherever they are. That's why we have different people. I'm on. From, businesses to help businesses to individuals, just simply because we're all on a different path and we're here to help. What would you, what is one piece of advice, idea, concept that you could give someone right now to help them on that next step in their journey?

Jacob Koenig: 22:39

Yeah. The one that comes to mind, I said earlier was time kills deals. And I think that there's something to that even more broadly, which is, taking responsibility for one's own outcomes. It's something that a client said to me once which is success or failure. When you take that sense of responsibility over, over both successes and the failures, it makes it so that you're learning those lessons more strongly when things don't work out and you feel really good when it does, cause you know that you really did earn it. And so that one really stuck with me and again he's one guy who's said time kills deals and that goes hand in hand with that. Which is don't sit around waiting and hoping, if you see something there and it makes sense,

Stoy: 23:19

you

Jacob Koenig: 23:19

got to take advantage when it's there.

Stoy: 23:22

I love that. I really do. And I'm going to tie it into how I end the episodes too is, okay, so now comment, reach out to us, DM us, email us. You have questions, we're here for you. I bring every guest on that I know is a good person who's really here to help you as a person. And so ultimately the only way to know is comment share. I don't do it for all the clicks. I don't really give a shit about that is ultimately because you need the answers. So reach out to us. I'll connect you. We'll all be good. And we can take that next step forward, but remember time kills deals. That's right. Appreciate it. So I Thank you,

Black Mammoth: 24:00

or recognition by unaffiliated third parties or publications are in no way of the advisor's future performance or any individual client's investment success. No award ranking or recognition should be construed as a current or past endorsement of black mammoth. Information regarding specific awards, rankings, or recognitions is available on the Black Mammoth website, www.black mammoth.com. All investment strategies have the potential for profit or loss. Investment strategies such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. This broadcast should not be construed by any client or prospective client as a solicitation to affect or attempt to affect transactions and securities or the rendering of personalized investment advice due to various factors including changing market conditions. The information discussed in this broadcast may no longer be reflective of current positions or recommendations. While information presented is believed to be factual and up to date, Black Mammoth do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. The tax and the state planning information discussed is general in nature, and is provided for informational purposes only, and should not be construed as legal or tax advice. Listeners should consult an attorney or tax professional regarding their specific legal or tax situation. Past performance is not indicative of future results.