1193: From 4-Hour Workweek to Multi-Million Dollar Exit: How to Sell Your Business Right with M&A Advisor Scott Weavil

Robert Plank 0:01 Scott, welcome back to the podcast. Mr. Scott weevil is here now. Scott is the founder of Sierra Pacific partners. They are a lower middle market investment bank focused on sell side mergers and acquisitions. M A advisory services now. Sierra Pacific partners functions like a real estate agent, but in the complex world of selling businesses rather than building so Scott is going to tell us about his trajectory on the rocket ship to success, as it were, his various trials and tribulations, the ways he's laughed and cried and succeeded and pushed through and all the other things in between. So Scott, glad to be speaking to you. Yeah, Robert,

Scott Weavil 0:40 thanks so much for having me. Rocket ship is definitely an overstatement. I think there's plenty of the trials and tribulations along the way, but I really appreciate you having me, and I'm happy to talk about you know, I know for any of your listeners that are interested in potentially selling their business one day, some of the things they may want to think about as far as what that process would look like down the line.

Robert Plank 0:59 And I love to get to that, because that's the thing where it seems like there's like, like, when I have all these podcast guests, there's like, two classes of people, right? There's the ones that are struggling, and, like, there's these, like, cereal, like, they build a business, they sell it, they build it, they sell it. And like, the amount of money they make, the way that they can just kind of pivot, it's, uh, it's something to aspire to, right? They're living the dream lifestyle, and then, and you hear like the kind of the horror stories where someone, maybe they started a business with all these hope streams, aspirations, and they built themselves another job. Now they can't get rid of it, or they have to let it die. And we'd rather be on the side of being able to sell it, doing things properly. And so educate us. What's there to know?

Scott Weavil 1:40 Yeah, for sure. I mean, I think buyers are mainly looking for a business. They're essentially buying an earning stream going forward, which means they're buying profitability going forward. For a lot of us, you know, there are in just different industries that are hot at different periods of time, but I would think for for most people, it probably doesn't make sense to chase industry, right? It probably makes sense to do what you do well and figure out how to optimize that sort of in an area that you have experience. But I think generally speaking, what buyers are looking for is what almost all of us would be looking for if we were buying a business. They're looking for something with pretty steady profitability, without huge dips in revenue or profit. They're looking at something where the owner isn't central to everything, because that's just buying, sort of a nightmare. You know, I talk to a lot of owners who essentially brag about working eight hours a week, that they perform all functions, that everything goes through them, and for sure, hard work is definitely necessary in the beginning, but that's not something a buyer wants to hear. I mean, just flip the table. Is that what you want to hear? That you know your wife and kids, whatever, never gonna get to see you again, because you're gonna be hustling for this business all the time. So I think those are two things to really keep in mind. I think the third thing probably is just super clean financials. Is you're moving towards a sale, the cleaner your financials can be, the better, because the cleaner your financials are, the less risk a buyer is gonna perceive in your business which is going to get you a higher purchase price. So that's the super bold overview, bullet point overview, sort of things to keep in mind as you think about moving towards a sale, but

Robert Plank 3:10 it helps us start there, right. That way we know what we know and where fill in the gaps when we don't know we don't know. So you're saying that we need steady profitability. We need a business that is not dependent on the owner. And then what was the third thing I'm spacing, clean financials.

Scott Weavil 3:28 Clean, good financials. So get, get that Lamborghini lease off your business. You know, as you're, as you're transitioning towards a sale, and for sure, like, some of these things vary depending on where you are, right? Like, if you're a small business, for sure, the only it's going to be owner dependent, right? But what we're talking about in that context is how owner dependent it is. Is it owner dependent to the degree that, yes, you're involved day to day, but it's not. You're not working 120 hours a week, and you don't hold all the key sales relationships. You're not the bookkeeper, the main salesperson, the main operator, everything right now, obviously, as you grow that's going to look different. I mean, if once you get up to private equity owned businesses, they're almost totally absent owners, right? So it's, it's a different it's a different thing. And that's

Robert Plank 4:14 helpful, because many times there's, like, the thing that we should be doing, and you talk without of doing it. But if you say, Wait, here's the goal, here's the reason why I'm doing this, it's so that someday I can sell it. And now it's like, okay, well, I'll do the difficult thing, right? I'll do that all those painful tasks of like, letting go some of the control, dealing with the maybe that that hiring new people and added costs and training them, and dealing with kind of that extra hassle now in order to have a huge benefit later on. And so what sort of like? What's the process like? Because, like, many times I talk to guys like you, they say, it's like a many years long process, right? They jump in. They say, Hey, we're at the starting point. Work on the financials all the way up to, like, getting the buyers and like, the letters of Intel. And then all that sort of stuff. So like, what's the timeline? Like, what's the process? Yeah, for sure.

Scott Weavil 5:04 And I want to add one other thing, it's not just for a sale, Robert, all these things that mean you're talking about, it makes it a fun business to own, right? You can go on that vacation and you're not on your laptop the whole time. So even if you don't sell, these are things that make it more fun to own the business. And obviously, if it's more fun for an owner that's the future buyer. So it's more it's better for that buyer too. But for sure, the process generally starts with us asking for Financials. We typically sign up an NDA with our clients saying we're going to protect their information. We review their financials, sort of see where we think we are, purchase price, likely, purchase price wise, if we have agreement around that, then the owner wants to sell, then we'll start getting ready to take it to market. Obviously, if we have a huge disparity in what we think for just prices, it's probably not going to be a good fit, because we don't think we can get it, get a deal done for a price that the owner thinks is worth it. So throughout this process, we're super dependent on the owner. We're going to ask for lots of financials, lots of information about the business that we sort of use to put together a marketing package about the business. And the more information owners can get us, the better we've definitely had owners that sort of, we typically send out sort of a questionnaire form, and we've had some owners in the past. You can tell they're just trying to check it off their to do list. And we have to go back to them and be like your responses to these questions are sort of our the basis for our marketing of the business. So the more detailed information you can give us, the better. But we get marketing materials together. It usually consists of something called a teaser. And a teaser is a one pager on the business without details that give away what the business is, because confidentiality is super important. So it includes things just, not just the business's name, but sometimes, if you include, like, a unique combination of factors, people can figure out what the business is, even if you don't name it, like, for instance, we're representing a tech company right now, and they're literally the only company that has this product. So unfortunately, we're in a bind, because we can't say what the company actually does, and we definitely get responses like this is a little bit vague. I know, I know if I'm interested in this, and you know answers we need to design an NDA before we can really tell you, tell you who we are. But anyway, we use that teaser to generate interest, get buyers under a non disclosure agreement, and then we'll send them the full marketing package. We call it a sim, a confidential information memorandum, and that'll have all kinds of stuff about the business, like the history, who the owners are, what their key products are, what the revenues are by product or service line, what they perceive as threats, what they perceive as growth opportunities, you know, sort of the full panoply of everything that describes the business. Typically, we will try to get interested buyers who have looked at the sim to sort of make offers around the same time, whether that's an indication of interest or an LOI. That way we can compare them against each other and try to get the best offer. And it tends to be a mix, if there's more to it than purchase price, right like you're looking at who you think is going to do right by your employees, carry on your legacy. How is that purchase price paid? You know, you may get, I don't know. Let's say you get 22 million cash up front, and somebody offers you 30 million, but it's 15 million up front, 15 million in an earn out, right? Those are different things. And then you also have to look at their capacity to close. And so it's generally a trade off between sort of price reputation, ability to close, and the payment terms, and then hopefully, you know, we sign up with somebody at that loi stage, execute definitive documents after diligence and get to a closing. But that's sort of the process and and timeline. It just very much depends. Typically, we advise clients. It takes about a year from the time you talk to us, for us to prepare marketing materials for us to get a buyer and things like that. It very much depends on your buyer type. If you're a little bit bigger business selling to a strategic or a PE firm, generally, they don't need outside capital to fund the transaction. So we're not as, not as dependent upon a timeline for that, like an SBA loan or something, but a lot of times they'll do more diligence. So those tend to be a trade off, um, that depends on the industry and just how how hot it is. And it's sort of like, you know, if you think about, um, what happens when you go to the mall, right? It puts the stuff on sale to sell it quicker, of course, right? So if you're looking to get an absolute premium price, you can expect to spend a little bit more time, probably in the market, whereas, if you're looking to do something quick, it behooves you to cut the price down a little bit. But I do want to say, like, particularly in the small business market, Main Street space, something like 80% of businesses do not sell. So obviously, you know, for them, the timelines infinite, because they're, they're not going to sell. And so everything I'm trying to do and talk about today is stuff that you can help get your ready, company, your company ready. So it's, it's one of those lucky 20% that does achieve an exit.

Robert Plank 9:54 Well, this is very helpful. And you know, you spark my curiosity. Someone with this 80% Here, and it's like, is that, are they just holding out for something? Is that intentional to sit there forever at 80% Why is it so high?

Scott Weavil 10:07 Yeah, I mean, we see lots of things. I mean, obviously some are just undesirable businesses, right? I get emails every day with people that are losing money that you know. And sometimes you can be losing money, and it can be a good opportunity. It really just depends on the circumstances, but you're losing money. You're you have, you know, the business is worth whatever. It's 5 million, but you want 10, you're not going to get a buyer. You know, it twice what, what the fair market price should be. We do see issues with owners that want all the terms their way for sure, and just point blank, like one sided deals don't, don't get done. You know, you have to give the buyer something. And so generally, we advise owners to sort of triage and prioritize what what's important to them, and then try to be flexible on what's important to the buyer. If we can find some common ground there. But I think those are probably the most common reasons you see failed, failed M A processes. And,

Robert Plank 11:01 you know, it sounds like common sense when you talk about it like that, in hindsight, but I'm sure some people, maybe they're going through it, or they will go through it, and they just, they don't know about the all these ways to go wrong, and like, in everything that you see right? Because there's not just you out there in the M A space, there's all kinds of people buying and selling businesses. Is there, like a number one mistake that, just like you see so much, it drives you crazy. It's easily solved, but people just don't know to fix

Scott Weavil 11:26 this. Yeah, for sure. On my side, all these deals tend to be predicated on speed. So the faster we can move things through the process, the better. Because the truth is, when you've got a buyer, if you're super slow producing stuff that they want during diligence that, first of all, that makes you look disorganized. Next, it may look make you look like you're not transparent. You're hiding things. But third, buyers want to look at other deals, and if you can't respond to them in a timely way, then they're just gonna, they're gonna get tired of it and move on and on the on our side, a lot of times, with some of the smaller sellers, they can get overwhelmed by PE style diligence. Those firms have outside investors. They have to make sure they're fulfilling their fiduciary duties, and so they tend to have a lot of diligence requirements. Right on both of those sides, you need to take an approach that sort of is protects your interest, but it's workable, but things where just information doesn't come over in a timely manner, that that kills so many deals. And we can tell on our end. Like, you know, there's buyers that I talk to for years, and it takes them six weeks to get me a P and L, right? Like, the best clients while we're on the phone, call somebody and I ask for something, somebody's emailing me that while we're on the call. So that's the level of or, I don't expect that from all clients, but that's the level of organization you should shoot for.

Robert Plank 12:45 That's something to be, to aspire to it and like, that's just, that's a good habit, if possible, in business, in life, be like, hey, right here, right now. Here you go. Because we all have other things to do. And like it, there's all these like observations that seems that you're making about how someone might just innocently be like, oh, you know, let's get to it. And you're like, hey, here's how it's perceived. It makes you seem like you're disorganized or you're not serious, or you're hiding something. And so we want to have a good a good fit, a good match when it comes to buying and selling this business, but we also want a good fit in the M and A advisor. So if someone's looking to sell their business, what should they look for, as far as an M and A advisor such as yourself?

Scott Weavil 13:25 Sure, I think you want somebody that's been in the industry, someone that does deals of your size, right? Like selling a $500,000 restaurant is different than selling a $500 million SaaS company, just everything involved in that process, the scopes are going to be entirely different. You know, same thing, selling a public company is totally different than selling a private company. So things like that, I think are great. You want to make sure you've got somebody with the appropriate licensing, whether that's, you know, on the SEC level or the state level, because that sort of shows that they have, they have rules and ethical standards that they're going to be bound to follow, um, but I think that's it. You want somebody that's experienced and somebody that is a deal maker, you know, not not a deal breaker, but also someone that'll fight for you as a seller, right, like you. You don't want someone that's so interested in getting a deal done that they try to voice sort of the wrong deal on you, but you do want someone that I think can give you solid advice. And when you are talking about terms that are highly unusual and just aren't workable, that person will say, hey, wait a minute. You know, we're not going to get to a deal. If this is, you know, if you stand on this and

Robert Plank 14:39 it's, it's a little bit exciting, right to just to kind of vicariously live through you and find out some of this. And I mean, tell me about this. Tell me about the deal maker mindset and why you like doing deals so much.

Scott Weavil 14:50 It's just fun. So I started my career doing this as a Wall Street M and A attorney, and so I've been in deals, you know, since I got out of school, basically, and a. Few years ago, ended up running a deal, actually, as a lawyer for a client that just couldn't find a banker that he liked, in part because he had some unrealistic expectations about what may happen in a deal in the bankers we're hearing, hey, there's no chance of me earning my success fee here, because we're not going to close. But sort of walking him through a deal, running it, you know, as a lawyer, but still doing the things that bankers do, reaching out to a buyer list, getting those buyers under NDA, you know, distributing marketing materials to them. It was super fun being more central to the process, rather than documenting the process, which is more sort of what you do as a lawyer. And so that's how I got into doing this side of things. And we've been, we've been relatively successful since got into some good closings for our clients that have been pretty life changing for them in some some circumstances. And so it's just fun. And I do like the fact that it is fast paced, for sure. I think that that's, you know, I don't like things to drag on forever anyway, and our clients certainly don't. Well, wonderful. So

Robert Plank 15:55 you said, Hey, I'm doing this. I'm in this profession, but I see this, I this is, like adjacent and I like this even more. I'll go for it, because life is short, and so in our last few minutes, I want to make sure that we, I'm not sure how much detail you can get into, but I want to make sure that we show you off and talk about if we have, like, a cool case study or success story to drop in here, just to show people, like, what's possible, what you do, what the what the process or not the process, but like, the the space is like sometimes, yeah, for sure. I

Scott Weavil 16:25 mean, earlier this year, we sold a SAS company, and it was a super interesting transaction, and we had a great client. And the reason it was interesting is he wanted a very, very premium price for it, because he was literally only working on this business four hours a week, and so his sort of argument was, well, unless I'm going to get a good price, I'll just keep doing almost nothing and continue to reap the revenue. But I will say, you know, his expectations were correct. He gave us time, and he was patient. It took us probably right about a year to sell, because this was one where, because of that premium price, we had to find the right buyer that saw that saw the value there. And I will say, because he was working four hours a week, he was super responsive. I mean, we would ask him for stuff, and it would come over, typically within a couple hours. And so both of those things sort of his patience and letting us find the right buyer. But also, once we did have that binder buyer being very, very quick to supply that buyer with diligence information that that buyer needed to move the deal forward. It just all worked together great. And we got him to, you know, a situation where sub 45 he's basically retired and only doing passive investment activities. So it was a great story for him.

Robert Plank 17:39 Very nice. And so if someone says, All right, well, I know that there's, there's so much to know, so much to do, and there's, like, so many ways to go wrong, so many avenues to take. I need some help. What kind of help do you provide? What does Sierra Pacific partners do? How does someone know if they're a right fit for your service? Yeah,

Scott Weavil 18:00 for sure. So, I mean, we're happy to talk to owners at any time. We a lot of times, we'll talk to owners 345, years out. And what we essentially do is we run this whole process. So we take your financials, we come up with that valuation, we put together the marketing materials, we take it to market, we get those buyers under NDA, and sort of shepherd you through the whole way. We don't disappear once we find a buyer. Some some firms actually do that. Once you find a buyer, you they sort of back off and just let the lawyers take it for sure. We don't, we don't cross into the lawyers lane. We like to work collaboratively with them, but not sort of usurp their their area. But we see it all the way from start to closing. That's definitely one of the things that we do, and typically, our focus is on deals from the 10 to 150 million size. So that's sort of what makes us a little bit different, in that that emerging middle market area is an underserved market. So there's lots of fantastic business brokers for smaller companies, right? And then there's lots of fantastic, you know, depending on the bank, but there's lots of fantastic investment bankers. Once you get to 50, 150 500 million depends on, you know, the bigger the bank, typically, the bigger the deal for them to get. Take a look at it, but we sort of fill that niche in the middle.

Robert Plank 19:11 Well, nice and so man, there I'm like, I'm overwhelmed, but in a good way, listening to you with all the things to know, all the nooks and crannies, the different kind of levels, the tiers, the ways to do it right, ways to not do it right. And so if someone is in this space, should they just go to Sierra Pacific partners.com and click the let's talk button?

Scott Weavil 19:32 Yeah, that's fine. Give us a call. Shoot us an email like say we're definitely we talk to, you know, owners pretty much all day, every day. That's what we're in the business of doing. So we're generally happy to speak with just about anyone. And I will say one of the things that maybe doesn't get quite as much air time that we do is we help folks that already have an unsolicited offer. So if you are in a hot industry and have a good business, you're probably getting emails from private equity firms multiple times a week about buying you. And well, a lot of times, what we do is we'll have a client that has one of those offers, and they'll give us a call and be like, Scott, we got this offer, we think they're low balling us, or we don't know if it's a good offer. Can you go out and very quickly, run a process and catch some other buyers off and see what other kind of interest we can generate. So we do that a lot

Robert Plank 20:18 too. That is interesting. So if they're if you're getting those unsolicited offers, then bring them to Scott. Maybe he can develop it into something, or catch some other offers along the way. This is a cool space that you're in here, Scott and people need some help with it. So Sierra, Pacific partners.com is the place to go. Go there. Talk to him and his team, explain your situation. Let them dive in, because this is a multi year process, and it's best to get started if this is something that you want for yourself in the future. And so as people are headed to Sierra, Pacific partners.com it's time to put you on the spot a little bit here. Scott at the very end, I like to ask my guests for a fun quote or lesson that has helped them in any aspect of life or business they can pass on to us. So what comes to mind for you as far as a fun quarter lesson?

Scott Weavil 21:03 Yeah, I think a fun quote is how you do anything, is how you do everything. I have no idea the genesis of that quote and where it came from, but I think, to me, it says, like, the little details matter right, trying to, trying to get everything right. And if you, if you cut corners and don't get the little things right, you're probably going to mess up on the big things too. So I think I'm not saying we always, personally, 100% achieve, achieve that goal, but, but as an aspiration, I think there's something to go for. And

Robert Plank 21:31 I agree with you, there's something to be said about the integrity, ethics, habits, all that good stuff. And so it's, it's good to kind of be on that track and pursue optimism excellence. You know the details, especially in your space where, man, there's contracts, there's huge amounts of money. Don't make a mistake. Go to the professionals, Sierra, Pacific partners.com, go there. You're gonna love the website. And Scott wonderful speaking with you about this amazing, crazy, breakneck world of M A Yeah, thanks

Scott Weavil 22:01 so much for having me. Robert, I know it's a weird world full of jargon, if you're not involved in it on day to day, but I think once you dive in, it's not that complex to understand, for sure. Thanks for having me.

Robert Plank 22:13 Thanks for educating us. You.