What a year it has been! If you are still here standing, then you deserve a pat on the back for making it through. Now that we’re at the end of this chaotic 2020, it’s time to look back and recount the things we gained and the lessons we learned. Domenic Rinaldi bids this year goodbye in this last episode of 2020 as he provides an end-of-the-year recap and a good story about deal preparation. After all, what is a good way to end a challenging year than prepare for the next and make it the year it could have been and more? Join Domenic as he signs off 2020.

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2020 Recap And Preparing For The Deals Ahead

What is going to be the last episode of 2020? What a year it’s been. I can’t even begin to recount the ups and downs that we’ve experienced, that our clients have experienced, and that we’ve seen in the marketplace. What is there to say about 2020? It has been unlike any year, luckily, thankfully, and gratefully for our firm, this has been our best year ever on record, shattering what was a record in 2019. For those of you that are wondering, how could that possibly be given what’s gone on the M&A market as I’ve discussed in previous segments has remained incredibly resilient, and we are very grateful for this success. As I’ve said, what has been the craziest year that I can remember? I would have never thought that anything would rival the great recession of 2008.

Our show has continued to flourish and grow. Thanks to all of you in the audience who tune in and the growing number of people who are finding our show and to the guests that have been a part of our journey. Many have come back for a repeat session, and we’re thankful to all of you. Hopefully, we’re delivering on the promise that we had. Remembering back when we started M&A Unplugged, we started this show with the hope of helping people be better prepared for their transactions because, over my decades of doing deals, the one thing that people failed to do, whether they’re buying or selling is do the proper preparation. They may do part of it. They may do half of it, but they don’t do and stay focused on all of the things that will lead to the best outcome with minimal risks.

In that regard, I want to end 2020 with this episode with as good a feel-good story about deal preparation, as I can possibly think of. It’s rare. We don’t typically see that people do all the preparation and take the time, but I’m going to talk about a client that we represented and brought to market. He had a tremendous outcome. You’ll learn when I get into the story that he took time to do all the things that he needed to do to be prepared. Going back to some of the earlier episodes, I’ve talked about our new firm, K2 Adviser, which we started earlier in 2020, with the sole focus of helping people get prepared for their transactions. When they are ready, hopefully, using Sun Acquisitions, our deal firm to then bring them to markets, either buy or sell a business.

Before I get into this episode and talk about this story, I would love to hear from all of you. We’re dedicated to bringing you great and actionable content about mergers and acquisitions. To that extent, if you have a topic that you would like us to cover something that we haven’t discussed so far, please let us know. If there’s a guest that you think would be a great addition to the lineup that we brought you, we love to hear about that. If there’s any other feedback that would help us bring you better content, I’d love to hear it. Please feel free to send that feedback directly to me at [email protected]. I want to hear your feedback and how we can continue to improve the show. Thank you again for being here and hope you enjoy this story of how preparation can make all the difference.

Getting into the story, I first met the owner of this business, Rick Lavin a few years ago. Rick had started this business probably several years ago. He built a business that provides disaster recovery for the banking industry. Think about a branch location in the banking industry. If that branch goes down for any number of reasons, it could be because they’re doing a rehab of the branch and that branch is going to be offline for a couple of months, or there’s been a hurricane or a flood or some other disaster, and that branch location is going to be down. Rick and his company Recovery Solutions provide a mobile banking unit that can do as little as providing an ATM experience or as much as providing full tellers. It’s a mobile unit that they’ll bring to wherever the disaster has occurred. They’ll put that mobile unit up. It’s got all of the proper technology, encryption, and cybersecurity technology that’s needed to get that bank up and running in a secure way.

When we first met Rick, we did an analysis on his business and we spent a couple of weeks learning everything we could about the business, breaking down the financials, diving in, and trying to understand what Rick was doing. Rick wasn’t certain at the time that he wanted to sell. He had a number in mind and certainly if we had hit the number at that time, he was ready to go to market. We did the analysis and we presented it to Rick. At the end of the analysis, he said, “This is great, but this is not my number. My number needs to be double this in order for it to make sense for me to move forward.”

2020 Recap: You’re going to have ups and downs in preparing. You could take two steps forward and take a step back.

It was great because Rick wasn’t under any pressure to sell the business. He was having fun. He was still growing the business. There was still plenty of upside in the business. He had the time to sit back and ask all the right questions, “Where am I deficient? How could I grow? Are there things in the operation of the business that I can improve?” We went through every piece of the business and worked it through with Rick to identify where the areas of opportunity were to improve value. We started with the financials, how could he improve some of the financial performance? Where would he need to be on an adjusted EBITDA basis in order to ultimately get to where he wanted to be, but there were operational things? Things like what the tax ramifications were going to be upon sale and how we could improve that situation.

Contracts, how he was drafting and writing the contracts? Whether or not they were going to be easily transferable to a new owner. Margins, the velocity of his clients, the length of the client contracts that he had. We broke down all of these areas. When we were done with that analysis, Rick went on his way and we agreed to stay in touch. Here’s what unfolded. From that point forward, about the same time every year, we touch base with Rick. We’d sit down and we do a snapshot again of where the business was at so he could get a sense of what was going on. He would give us an update on the business and the things that he has done to improve value, whether it was employees, the contracts, his operations, his units, and the total number of clients. We do a new snapshot and give them a rough sense of where the new value was. This went on for pretty much several years.

Every year, we do the same thing and sit down with Rick. We’d go through it and he’d be like, “This is great, still not my number. It’s perfectly fine that it wasn’t his number, but he had the roadmap on what to do to get to his number.” I think this is illustrative of what I talk about in many of the episodes, what my guests talk about is preparation takes time. It’s not going to happen overnight. You’re going to have ups and downs in preparing. You could take two steps forward, take a step backward. Understanding what you can do and how you can get your arms around it in your business to improve value early gives you the opportunity to fix all of those things and maximize the value.

When you are ready, you’ve got a business that you know, you’ve done everything you can to get it to the maximum value that when you transfer to a new owner, there are going to be minimum risks for them and for you. Rick religiously every year went through this process and then lo and behold, at the end of 2019, we did the same analysis. We’re like, “Let’s see. Maybe this is the year.” Rick was hopeful that maybe this was the year. Sure enough, we did the analysis. He had improved the operations. When we did the final value opinion, we were very close to the number that Rick needed in order to move away. We had a long conversation about what it would look like to go to market, who we thought the prospective buyers were and what the market was like at the time. At the end of 2019, the market was incredibly frothy. There were a tremendous number of buyers in the marketplace, interest rates are still low, and lots of transactions happening.

That in combination with a value opinion, that looked like we were at the number Rick agreed, “We’re ready to go. Let’s take this thing to market. Let’s see if I can go get this done and then move on and go pursue some other interests.” He said he wanted to do, but was willing to put in the work to sure that his business got to the point where it made sense for him. I’ll give you the rest of the story. I’m going to condense it because I’m going to have Rick on the show at some point in time. I want him to talk about his experience and what he went through. In essence, once we knew Rick was ready to go, we package up the business.

We built all the marketing materials. We identified all prospective buyers that we thought would be a good fit for the business. We got ready and we went out to market. We hit the market somewhere around March of 2020. We went out proactively calling all of the targets that we had, identifying people and also, we marketed the business through third-party channels so we’ll get inbound inquiries from people that we don’t know. The buyers that came to the table where the people that we had identified early on in the target list through direct outreach to them and see if they were an acquisition mode. We brought them to the table. Fast forward, Rick had five offers to consider. We had hit the mark on his value right out of the gates as soon as we started to receive offers.

2020 Recap: If you own a business, get your arms around what you have, understand what drives value for your business, where the gaps are, and how you can improve them.

Through a negotiation process, happily for Rick, he was able to get overvalue for his business because there was so much interest in his business. He had built a great business. He had client contracts. He had recurring revenue. He had paid attention to a lot of the details to get his business to operate in a way that buyers were going to covet. Kudos to him. We were lucky to be introduced to Rick and have the opportunity to handle this transaction for him, but he had a great business. We were able to cultivate the market, bring them a ton of buyers. He got multiple offers, got a great outcome, and sold the business. The transaction took 5.5 months to get closed and he couldn’t be happier.

He’s in transition with the deal now, working through all of the things that he needs to work through. It’ll be interesting to see what the next phase is going to be for Rick, but he’s incredibly happy. He got the number he wanted. It took some time. He was patient. It didn’t happen overnight, but he got what he needed and what a great outcome. I can’t stress enough, the fact that he was willing to look at it early and do the work and not wait until he was ready to get out of the business, gave him the opportunity to clean up a bunch of stuff and make for a great transaction and a great transition. I stress that if you own a business, that you do the same thing. Get your arms around what you have, understand what drives value for your business, where are the gaps are, how you can improve the value, and then go take the time to work it and improve all of those things so that when you are ready, you know that you’re going to walk away with maximum dollars.

For buyers, it is the same thing. It’s no different. If you’re a buyer in the marketplace doing your homework ahead of time, which entails a ton of things, believe it or not, having your team in place, having your debt facilities in place, honing in on what type of business you want to acquire, whether you own a company and you want to add something in, or you’re an investor, and it’s going to be your first investment. Doing all that preparation matters. We spend a lot of time on the K2 Advisor side, helping people understand what preparation looks like so that when they are ready to do the transaction, they’ve got the peace of mind to get a transaction done and know that they’re going to maximize their value and minimize their risks. Again, what a tremendous year. I hope all of you have a tremendous holiday season, and I wish you nothing, but the best in the New Year. If you enjoy our content, please remember to subscribe and review our show. I look forward to seeing you again in the next episode. Until then, please remember at scaling, acquiring, or selling a business, takes time preparation, and the proper knowledge.

Important Links:

• K2 Advisor – Previous episode
• Sun Acquisitions
• [email protected]
• Recovery Solutions

About Domenic Rinaldi

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