WES S04E03: Finding 7 & 8 Figure Deals
Where can you go to find quality 7-8 figure deals?
You’ll find some 7-figure deals with the brokers, yes, but is that the ONLY place to source these deals?
Nope. In this episode we’ll look at some of the online and offline places you can look to find these gems and we’ll cover the advantages and disadvantages of each.
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Alright, let’s dig in…
Listen To The Full Interview:
What You’ll Learn From This Episode:
We’re going to cover the advantages and disadvantages to each of these?
- Professional Network
- Industry Leaders In Niche Industries
- Tier 2 Competitors in mid-sized industries
- PE Groups and IB’s
Featured On The Show:
- Empire Flippers
- Ace Chapman
- Quiet Light Brokerage
- Digital Exits
- Digital Acquisitions
- Jungle Scout
- Time Doctor
- Long Tail Pro
- AMZ Tracker
- Founders IB
- Copley Equity
- Investment Bank
Justin Cooke: Definitely sending business to other peers and people in our network has been super beneficial for us.
Speaker 2: Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show, where thousands of successful entrepreneurs go to learn about buying, growing, and selling online businesses. Your hosts, Justin Cooke and Ace Chapman, share their real life advice, examples, and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.
Justin Cooke: Welcome to the Web Equity Show. I’m your host, Justin Cooke, and I’m here with my cohost, Ace Chapman. Today, we’re talking how to find seven and eight figure deals. Good to be back on the show buddy.
Ace Chapman: Yeah, it is good to be with you as well. As you know Justin, in 2018 and ’19, one of my goals has been to increase the deal flow when it comes to seven and eight figure deals. It’s actually happened a little bit, and some of that is I’ve seen you guys have a lot of growth there, as well.
Justin Cooke: Yeah man, a lot of our growth is due to doing larger deals. We’ve moved into seven figures and we’re looking towards eight. We’re mid-seven figures right now, trying to get those deals done but we’re heading in that direction so that’s why I think it’s interesting to talk about. We can talk about the seven figure deals we’ve done and the eight figure deals we’re looking to do. A lot of the growth at Empire Flippers has come through just doing larger deals and getting more involved in that side of the business.
Ace Chapman: One of the things that I’ve realized is while some of these deals, you’re gonna find with brokers and they’ll be just on the market and you’ll see them, I want to talk today about some of the other places that we’ve found those deals. Our largest deal of the last year was a $5 million dollar deal and it was an off-market deal so today I know the listeners are gonna be excited. We’re getting into how do you find these seven, eight figure deals off market.
Justin Cooke: These are the monsters. I get these questions a lot, I’m sure you get this question a lot; how do I find the really good deals, where are all these off market deals? We’ll talk about what good deals are, we’re gonna talk about some of the advantages and disadvantages of both on market and off market deals. There are some advantages, you can find some real steals but it may take a little bit of time and you have to be pretty patient. We’ll talk about some of the reasons for that.
Before we do that, buddy, let’s do some listener love! First off, We’ve got another five star iTunes review, this comes from Siurc, it says ‘very informative, it was a great podcast with a lot of in-depth knowledge unlike other podcasts I find where the hosts are or guests only give big ticket or very obvious examples. This podcast gives small details and very specific examples. As a beginner in the world of web buy/sell, this site was invaluable.’ Well I appreciate the review and I’m glad you found this valuable.
We’ve also got a question, Ace, it’s from Rick. Rick is getting started and he said, “hey guys I just started listening to your podcast. Let me start by thanking you for putting up such an informative show. Brand new to this world of website purchasing. I started listening to the podcast during season one, episode one and moving on, some of the topics brought up, I’m still unfamiliar with or not at that point yet. My question is, is there a recommended order to listening to the podcast? I noticed season two seems to be more for beginners, should I start there and go back to season one? Thank you.” Well thank you, Rick for the question. We were talking about this before we got on the show, Ace, season two we really start off for newbies and how to buy websites and we really start with the basics and definitions. I think that’s probably the best place to start. What do you think, man?
Ace Chapman: Yeah, I agree. When we first started the podcast, we were a little bit all over the place, we didn’t know where we wanted to head, what the show was going to look like, but we wanted to get started because there was a lot of demand for that kind of content. After that, we really planned out each season. I would probably say, literally go two, three, maybe back to one, but you could do two, three, four and then back to one.
Justin Cooke: Yeah that’s funny, season one was kind of all over the place and we didn’t know if the show was gonna stick. We thought we would try it out, it might be kind of fun and when we said this is something we want to continue, we said alright, buddy let’s get serious with this and let’s really plan out for our listeners and have something that we can refer people to when they’re looking to buy or they’re looking to sell and looking to get started in the industry. So I agree, season two and season three about how to sell a business, and then probably season one and then season four where we’re talking about obviously the larger deals as people continue to level up.
Alright man enough about that, let’s get into the show!
Ace Chapman: Let’s do it.
Justin Cooke: Alright Ace so we’re talking finding seven and eight figure deals. We need to talk about places you can look.
Ace Chapman: We talk about looking for offline deals but why try to climb to the top of the tree before you get the fruit or at least look at the fruit that’s at the lowest hanging point? The lowest hanging fruit when it comes to deals is obviously brokers. I’m sitting here with Justin but we all know there are other brokers besides Empire Flippers, some of them include Quiet Light Brokerage, Digital Exits, Ryan over at Digital Acquisitions, and there are plenty of them.
When it comes to doing these deals and working with brokers, you don’t want to ignore the brokers because they have these seven figure listings and they could end up listing one that is the perfect match for you, and if you’re totally ignoring those brokers, you could miss out on those deals. With some of the brokers, every once in a while, I’ve seen them come across those eight figure listings as well and it’s super rare right now, I think partly because there are only so many of those businesses that are gonna come to our space and sell because a lot of them are trying to eventually go public, or they’re dealing with venture capital firms where the multiples are way beyond anything we want to consider. When you get into those eight figure listings and you have a broker that’s representing them, and it’s one of the brokers in our space, sometimes those multiples can be really amazing.
So what are the advantages to dealing with a broker? Like I said, it’s the lowest hanging fruit! These deals are easiest to find the broker has done all of the work for you, instead of you doing the work, you’re paying them to do it, they’re bringing you the deal, and then you have somebody who’s professionally reviewed the deal so they hopefully have vetted the business, you kind of have a process, and we’ll talk a little bit later about what it takes to get these off market business. It’s work. So to have somebody who is doing that work for you, you don’t want to discount that. I think sometimes people look at the old market deals and they’re like, “oh well this is old market and so it’s not as valuable” but the truth is, having somebody who’s found that deal for you, done that initial work and people don’t appreciate that work until you start to source off market deals, having somebody who is gonna walk you through the process and then somebody who has hopefully vetted the business, to some degree, bringing that deal to you is really valuable.
Justin Cooke: Yeah, most brokers are gonna have some kind of process they put the deals through. They review, they’re gonna deny some listings and take on others so yeah they’ve been somewhat vetted. Also, the professional process you get to deal with and with brokers it’s a different process but generally they’re pros. We’ll get into this a little bit later but when you’re dealing with entrepreneurs or founders, it can be a bit of a struggle because they’re either too close to the business, they’re professional entrepreneurs but they’re not professional brokers, they’re not selling businesses as a profession. So it’s a little different when you’re dealing with a pro.
Ace Chapman: I’ve heard this in tidbits but it’s about 88% of businesses that sell are sold by sellers that are first time sellers so when you’re dealing with those people, they’ve built a great business, they’re smart, they’re intelligent, they just don’t have experience selling a business and what a broker does is kind of train them on what that’s gonna look like and they just don’t trust you as the buyer, as much, to train them.
So let’s talk about the disadvantages. The disadvantages: you’re gonna pay a commission and you’re gonna pay retail. The job of that broker is to get their seller the best possible deal. You want to understand that the seller is their client, they have a contract with that seller, they don’t necessarily have a contract to represent you so the want to get their client the best possible deal and that’s something that you come to the table knowing.
Now, I say retail but one of the things when I’m talking to people now that I have to remind them, is that retail in this space when you’re talking three, four times earnings is kind of where we’re at right now, with some of the deals that are this size, it’s still amazing compared to every other asset out there so don’t get too bummed about paying retail if it still ends up giving you an amazing [00:08:42].
The second thing as a disadvantage is you won’t find those eight figure deals. Like I said, those deals are few and far between, I’ve seen them every once in a while, if it is a really great deal, now you’re competing against private equity firms so they might get gobbled up really quickly. And to get those eight figure deals, like we’re gonna talk about later, in a lot of cases, you do have to do the work to get those deals and the other downside to working with a broker is there’s gonna be more competition and less flexibility to negotiate.
We talked a little bit about this in the deal structuring call from last season but when you are doing these kinds of deals and you’re working with a broker, sometimes the seller just doesn’t understand when you’re trying to do this complicated thing and they have somebody else that’s gonna have a complicated deal structure and isn’t as aggressive, they’re just gonna go with the thing that’s the easiest to understand, doesn’t take a bunch of negotiation, doesn’t take a bunch of figuring out and that could be a disadvantage, especially when you’re dealing with a seven or eight figure deals and you’re not able to get in there and really do the deal structure.
Justin Cooke: Another disadvantage I’d mention is, and this isn’t necessarily the case with the brokers you mentioned – Quiet Light, us, Digital Exits, Digital Acquisitions – we’re all doing good deals, we’re denying some, we’re accepting that this is really clear cut, but that caveat being said, there is a case of lipstick on a pig. They get dressed up. I don’t know if you ever seen AirBnB, if any of our listeners are regulars of AirBnB, but you’ll see the places that look a little dark, the lighting doesn’t look fantastic, you see this in real estate listings too, where it looks a little off and you’re like, “oh” and someone goes in that exact place and does the right lighting and does the right angle for the room and you’re like, “oh it’s so bright and airy, it’s amazing!” That’s what we’re doing as brokers. We’re taking the good angles, we’re doing the good lighting, we’re making the place look awesome!
So just know that as a buyer you’re going to have to spend some time really digging into the deal because you want to know the nooks and crannies, you want to know what’s it look like when the lipstick’s off, what does he or she look like when they wake up at 7 in the morning with no stuff on their face. I took that analogy a little too far but you get what I’m saying, you want the real deal.
Alright man so let’s talk about point number two. The second place you can go to, you can look towards your professional network and by professional network we meant attorneys, we mean accountants, we mean financial advisors, we mean angel investors, the professionals around you, professional services and providers around you have access to a lot of deal flow that you may not be aware of. This just points to the advantage to building out your network. One of them can be deal flow. The people I know that are looking for these seven figure acquisitions, the ones that struggle are the ones that don’t have a professional network built around them. They haven’t done it over the years, they haven’t invested in that and so they’re not able to hear about the deals that are going on. Well the least you can do with this network is let your attorneys, your accountants, your financial advisors, let them know that you’re looking for deals. Telling people what you’re trying to do gives them an opportunity to help you and if you let them know you’re open to and looking for deals and they know that you have access to the capital to acquire those deals, they may have some clients that are looking to sell so if they hear of anything, they can turn you onto deals that are the completely off market.
So let’s talk advantages to this. As I just mentioned, there are many off market deals that are available through your network. A lot of times accountants or attorneys are working with the kind of businesses you’d like to acquire and it gives you access to them. There’s also a lot less competition. A lot of these people aren’t necessarily looking to sell, but if they find out that someone’s cashed up and looking to purchase, they’re looking to spend their money, that may make them a little more interested so if you let your attorney, you let your accountant know, they can kinda spread the word and let people know and you’re able to get access to deals that weren’t for sale at all. They’re also generally pre-vetted by your network so if your attorney is their attorney, or your accountant has worked with these guys before, they have some sense of how they’re doing financially, what kind of deal it is, and you’re in better shape because these are people that have worked with this business or have worked with these entrepreneurs or founders in the past.
Ace Chapman: What I would do is even put these in order. I’ve done a ton of deals with accountants and I would say accountants are number one to do deals with that you get a ton of trust when I’ve had accountants sell businesses for me and it was the easiest transactions, ever. Just quick and easy, both parties are sometimes using the same accountant, the accountant knows the numbers, they’re a licensed CPA, they’re not just throwing numbers around. You have a lot more trust than a broker. After that I would say angel investors are a really great source, then advisors, and then I would put attorneys last, personally just because they can be an absolute pain to deal with. They will send you deals and then, I actually remember there was one deal that we were negotiating and the attorney who was referring the deal, not the contract, the escrow agreement was 15 pages long. The escrow agreement. This is totally separate from the LOI or the contract so you get into a different world when you’re dealing with the attorney mindset. That’s kind of the order that I would hit those, personally.
Justin Cooke: It’s interesting, when you worked with attorneys that have dealt with [00:14:10] before, dealt with acquisitions, they seem a little bit better with getting the deals done but we’ve had some attorney nightmares where you have three parties’ attorneys; the buyers attorney, the sellers attorney and if one or more of them is brand new to this, oh God man it can be an absolute nightmare because they’re billing by the hour, they’re cutting this line, another person wants it back, they’re changing it around. Even our customers, the buyers, the sellers and us, everyone just kind of like, “okay guys, I know what you’re doing here, can we just get this deal done?” Sometimes it takes that. Sometimes it takes us or the buyer or the seller to just cut the crap and say “okay, let’s get back to business here”.
Alright man nice little tangent about attorneys, let’s talk about some of the disadvantages of using your professional network. The first one is a lack of consistency. If you’re dealing with accountants, you’re dealing with angel investors, you’re dealing with attorneys, they don’t have deals all the time and so you may get two or three options pop up in one month and then go dry for ten months because they just don’t have anything or out of sight, out of mind and so relying on a professional network for deals just isn’t gonna happen. If you’re cashed up and you’re letting the cash just sit there, not earning a return, not making you money, waiting 10 months, 18 months, 24 months may not be in the cards for you and that’s how long you may have to wait with your professional network, depending on how many deals they can provide.
Another problem is that it may be a struggle for them to match your criteria. So of you’re looking for a SaaS business in this particular space, and you want it to be this amount of money and you might have an even more difficult time using your network because they may not have access to exactly the right deal. If you’re more open, if your criteria is open and you have a wider range of deals you’re willing to look at in terms of price, in terms of industries, this can be effective but if you’re a little more strict, even a little strict here, it may just not have enough deal flow to get you the deals you need to see to make one happen in your range.
Ace Chapman: And that’s a real key to these is that there is not a lot of deals that they’re doing. It’s not their first priority when they’re looking at their business planning chairs. How can I send more deals out to potential clients? One of the things I like to do is just to put the pressure on, now I’m not talking about put pressure on like stongarming them, if you send them business, that’s the best way to get them to get sure that when they do get a deal, and that’s what’s crucial, you just want to make sure when they get that really great deal that they send it to you and I found the best way to do that is for you to go into your network and say “hey, if anybody’s looking for accounting, here’s who I’d recommend.” How can I help the angel investor? It would be sending them potential deals. With each one of those you want to figure out how you can help this person and that’s what’s going to keep you top of mind so you know when they do get a deal or they get that one of the four deals that they’re gonna get in the year, they’re gonna send it to you.
Justin Cooke: Honestly, Ace, I found that very valuable with Empire Flippers. We do have a lot of professionals in our network, both at our work with Empire Flippers but also our content marketing and everything we do but when we send business to other professionals, it just endears them to us. It gets them way more likely to mention us, to mention us to people who are looking to sell their business, people that are looking to buy businesses so definitely sending business to other peers and people in our network has been super beneficial to us.
Ace Chapman: So let’s talk about another source. You get outside of the brokers, you get outside of building this network of professionals and now’s the time to start going direct to companies. This is where people have a tough time because there are a billion websites. How in the world am I gonna figure out which one of these sites I should go after and what makes sense?
One of the things you have to do is make sure you know the market. Make sure you go after industry leaders and it’s that in-between place you want to be. You want to be in the market of industry where you’re going after industry leaders, but obviously we’re not buying billion dollar companies here. Examples would be the Jungle Scouts of the world, the Tides Doctors of the world or there was a recent deal in that range where Longtail Pro was sold. These businesses that are not venture-backed billion dollar industry leaders, they’re in the niche industries but they do kind of control that little niche, but it’s only so big. The average consumer is not getting on Longtail Pro, they could absolutely care less. The market is only so big for that SaaS.
When you’re going after these, the most powerful way to get into even a discussion about buying these companies is to have some kind of in with the company. The easiest way is getting linked in, going to Google and starting to build your network and having discussions and letting people know that you might be interested once the company comes up for sale. These things are usually not going to be for sale when you reach out so what you’re doing is you’re building a marketing funnel. It’s just like having leads in your marketing funnel where you’re building relationships, you’re building your network and you know it could be months, it could be years, but one day, that entrepreneur is going to wake up and their either going to be bored with their business or hate the fact that they don’t have more time with their family, or just want to do something totally new and you want to be the person that they think of to call when that happens.
So what are the advantages to this? Today there are plenty of seven and eight figure businesses. I remember 19 years ago when I was first doing deals, there were really only two kinds of deals at that point. There were the very tiny businesses, there weren’t a lot of seven figure businesses, there were a ton of tiny things so people were just getting started on the internet and figuring it out, it was just ordinary entrepreneurs and then there were the venture multi-billion dollar businesses. Today, there are plenty of these niche industry leaders that are in that eight figure, seven figure target market.
The other thing that is exciting is that you can target a certain niche and you are in control, unlike the brokers when they’re bringing you deals, or your professional network, you can control the businesses that you go after and the ones that fit your criteria for what you think is gonna grow and you know once those people come back to you that you’re buying the business or you’re getting leads that are in you wheel house as opposed to having to field through a lot of things and having to say no a lot. The most powerful thing here is that there’s a lot less competition and when you build the relationship the right way, they don’t really care to have competition. A lot of these entrepreneurs don’t want to bring their business to market, they just don’t have anybody that’s sitting there that’s ready that is interested in buying their business and has given them a fair offer so a lot of times if you can help them avoid having to go through the process of being on the market, they’re happy to sell with less competition, as long as they’re happy with the deal and the structure and the price that you come up with to acquire the company.
Justin Cooke: Yeah it’s nice to be able to target the exact niche or the exact type of company that you would like to acquire and like you said, it’s like a blue ocean, there’s a ton of seven and eight figure deals out there that are potentially acquirable and you can pick the exact one you want. The fact there’s less competition, there may be like the seven figure deal in particular, maybe like a low eight figure deal, may be too small for the private equity and investment banks there’s just not a big enough deal for them to bother with. So you’re kind of in that weird spot buying a five, six million dollar business, you’re in this weird spot where it’s not big enough for private equity but it’s too big for most of the people looking for deals with the six figure range. So you’re in that sweet spot that can be fantastic for acquisitions and allow you to do interesting financing, create a financing with the sellers that know they’re in that spot.
Ace Chapman: Those are the advantages to doing these kinds of deals and I agree. At the end of the day when you’re sitting across the table from that seller and you’re able to talk to them and explain your deal structure, you can get a lot better deal than you’re ever gonna get trying to work through an intermediary. Those are the advantages, obviously there are some disadvantages and the biggest one is, like I mentioned before when I was talking about the brokers, there is a ton of work involved with getting off market deal flow this way. You’re gonna get a ton of no’s. You’re gonna have people that, honestly never even reach back out to you to say no! You just hear crickets but eventually we know that these kinds of deals happen and so you have to be willing to do the work to get to the yes.
The other thing is that it’s gonna take a lot of time just to build rapport and even get to that conversation of, “hey do you think you would ever be interesting in selling?” It can be a bit of a turn off for some sellers, especially if they’re like, “hey I’m in hustle mode, I’m building my business, I love this thing” and then you email them about buying their business without building some rapport first, that can be a turn off and then you have to, secondly build up to the part where they trust you to start sharing information after they do want to sell. Sometimes people feel that this protection may be real or fantasy using an intermediary but if you come in and you’re direct to them, they don’t know maybe this person’s from a competitor and they’re trying to come in and take our secret sauce and you have to get over those kinds of concerns and the only way to do that is time and building rapport.
The last of the disadvantages is, at the end of the day, industry leaders realize that they’re industry leaders. They’re not shocked, they know the work that it’s taken to get to where they’re at, typically they’re gonna want a premium. It makes it a lot easier when you’re willing to pay a premium. A book that I love about all of this stuff is Barbarians at the Gate, it’s like a 600-page book about a single deal and one of the things that’s interesting is that in each [inaudible 00:24:06] he’s basically trying to figure out, how can we work this deal or structure this deal to pay the most money and that’s what you want to do when you’re looking at deals like this as well is, I want to be smart, I want to get a great ROY, but how can I show this seller that even compared to what’s on the market, they’re getting a premium so there’s no reason to go to anybody else but me.
Justin Cooke: What are the other things that’s a little tough with these industry leaders and these niche or boutique industries is they’ve often got business analysts from these private equity groups or investment banks hunting them. They’ve got business analysts that are all day working LinkedIn trying to drum up deals and so they’re confident all the time and saying “maybe we can help you sell” and they’re likely too small but business analysts are looking up and down the chain so maybe too small but they’ve maybe got an idea in their head, either through that or by watching Shark Tank that they’re worth a gazillion dollars that they can Silicon Valley money when that’s just not the case for them. So if you can gently break them from that, even though they’re leaders and they’re niche, that just not a realistic multiple. It may take some time but if you can get them off that path and back down to real world numbers, you may have found yourself a deal.
Alright man lets look at another way to do it. Instead of just focusing on industry leaders and niche industries, there’s another way to do it and that’s through tier two competitors. In this approach, you’re gonna look for tier two competitors in mid-size industries. Think a company like AMZ Tracker, to the industry leader, Jungle Scout. Think JVZoo to ClickBank. So what you’re gonna do is you’re gonna look at the ten million to hundred million plus industry leaders and say, who are their competitors? Here’s a 40, 50 million dollar company, who’s trying to be them? They’re at the eight million dollar, the 15 million dollar level. Who is at a 20 million dollar level and has competitors that are worth three, four, five million dollars and let’s start targeting them.
One of the benefits of this is that instead of just looking for the industry leader in some niche industry, you’ve now got multiple competitors you can deal with. So you may have three, four, five, eight, 15 competitors that you can talk to, that you can start shopping and take a look at how they work and what makes their business tick.
Some of the advantages to this approach is again, you get to chose the niche or the industry that works for you, unlike a broker who’s just bringing you the deals, or relying on a professional network to send you deals where they made a connection, they know someone who might be interested in selling their business, you’re able to specifically target the ones that make sense and do some research from the get go. Another advantage is that you can name drop other competitors. You can let this tier two know you’ve talked to the tier one, you’ve talked to other tier twos, and you’re in contact with them and that you’re looking to acquire them. That lets them know that you’re serious, that you’re really having these conversations and there’s also a little bit of fear of loss. When you’ve got a big daddy in your niche, someone that’s ahead of you, you’ve got these other competitors, the industry’s heating up, everyone’s battling for position to market share, name drop a competitor, it could be helpful.
Ace Chapman: Yeah, absolutely I think when you go in, you gotta have some kind of leverage and you want to figure out when you go in what your leverage is gonna be and that’s a great one if you have some experience in the industry, that’s a great one, if you’ve got a ton of cash, whatever the case is, you want to go in and be able to use a little bit of leverage and that’s what you’re doing there when you name drop competitors.
Justin Cooke: Talking about some of the disadvantages of these tier two competitors, again, you’re gonna get lots of no’s and because you’re shopping multiple competitors, you’re gonna get plenty of no’s. Like you said, sometimes they’re just not getting back to you at all, if you’re doing a direct cold email, you’re gonna get more no’s than if you’ve used your network or you found other ins so do try to be creative in your approach. If you find that you know someone who knows the founders that can get you in, that’s always much more helpful than some cold contact form or some email you scraped. Definitely use your network to your advantage.
We’re talking a lot about network in this episode, Ace, and I think that goes to show how important it is but another disadvantage is that a lot of times these tier two competitors may be less interested in selling if they’re in a really hot, really growing market. If their industry leader is really taking off and they’re really starting to gain market share on them and they’re riding the wave, they might just be less interested in selling because they see the promise of the industry and it really depends on the position they’re in. If the industry is really hot, just expect to pay a premium but that shouldn’t shy you away if you know the industry and you’ve got some competitive advantage that makes you want to get into it.
Ace Chapman: Yeah, at this point you’re only doing these deals if you recognize that you’re willing to pay a premium and that you’re in a world where its not so much just a premium but it’s what these deals go for. You can end up paying a five, six multiple in some cases for these deals but that is what you’re able to sell it for as well in that rage. It’s not so much that they want more than what the market is really paying, it’s just that this is what the market is paying here and this space, once you get to these kinds of deals, there are enough small private equity firms, enough small investment banks that are also reaching out to these people, telling them this is what we can get you. So just understand that once you get to this level, you are competing against other investment banks, they’re not just sitting there with no idea about the value of the asset that they’re sitting on.
So let’s talk about the last spot that I think a lot of people overlook or just aren’t aware of. It’s private equity groups and online investment banking networking sites. This is something that I’ve used for a long time, honestly, if I’m comparing it to me building my own network, going after accounts, I get a lot better deal from those sources. It’s kind of an underground place to look for deals and like I mentioned with brokers, you always want to be in the market, you want to know what’s going on but the interesting this is when you’re dealing with these, it’s the same case as those tier two competitors. We’re in a market here we can get some amazing deals and that’s why when you’re talking about buying a seven figure deal at a premium, I’m all for it because I know what the investment banks and what private equity groups are willing to pay and they’re still making incredible returns for themselves and their investors.
Some examples of these networks are FoundersIB.com, Copley Equity is another one, wouldn’t have a ton of content, which is interesting is investmentbank.com and the last one is Axial.com and that’s A-X-I-A-L .com. Each one of these is essentially a network. They’re investment bakers that are part of this network, there are some sellers that are directly coming to these networks to sell their business and then there are private equity firms that are buyers and few individual buyers as well. The benefit is you end up with this large network of deals, you get to review deals, look at deals and just the education that I feel like you need before you start to go direct to some of those niche industry leaders or some of those tier two competitors, all of those people are gonna expect that you’re pretty knowledgeable about what’s going on in their space and what’s going on with those types of deals and this is a great way to keep your finger on the pulse of that seven, eight figure deal marketplace.
The other great thing is they turn down a lot of deals and Axial doesn’t just allow anyone to post up a deal and say “oh great, you’ve got this opportunity posted, people can take a look at it”. If it looks sketchy or is not really making money or it looks fake, they’ll take down those deals and it can be expensive to put deals up there so that deters a lot of the riff raff, if you will.
So what are the advantages to working in these networks? Number one is, they’re some high-quality, pre-qualified deals like I mentioned, in addition you’re getting to review those and that’s an education in and of itself. The network also has a lot of investors so you can end up raising capital to get the deal done which is a great bonus as well.
Justin Cooke: It’s interesting, Ace, I’m really glad you brought this up because I have less experience with these guys than you do. We are reached out to all the time by these guys looking to get an idea of what kind of inventory we have, what kind of businesses we have for sale and inevitably they’re always too small and it’s from the low to mid seven figure range and they’re just too small for most of these guys. We run through the numbers and they’re like, “oh can’t do it”. I think as we start to bring in larger deals, high seven, low eight, now we’ll be starting to move into their territory. The under five million, they typically aren’t looking to buy, they’re just too small of deals. Do you find any high seven figure deals available through their sites?
Ace Chapman: Yeah there are definitely high seven figure deals, the biggest issue with their high seven figure deals is that it’s really our low seven figure deal that they put a high multiple on to try to get into that world so what some people do is, instead of saying “we’ve got this four million dollar deal” they say, “oh it’s a nine million dollar deal” but then you dig in and realize it’s not really, its really a four million dollar deal and they’re just trying to sell at an outrageous premium.
So just go in and understand that you’re in a different world than dealing with some of the brokers that we talked about before and it’s still some work to dig through there and find those businesses and you’re also up against some investors with some real cash and they don’t mind coming into a ten million dollar deal and putting five million dollars down on that business. It’s a place where you’re gonna want to go in, get the lay of the land and actually one of the disadvantages is you also have to make serious connections. This isn’t a dealing with a broker, it’s not like going to large Flippa, I’m gonna go in there and bid on some sides, maybe I’ll get one, maybe I won’t. Everybody is just and intro. Everybody understands that these things take a long time, a lot of the deals fall through when you get into the high seven figure, eight figure range. You’ve done a ton of work, even after you sign the LOI and just the percentage of these deals, and I’m sure you’ve seen this even going from six figure into the mid seven figure, those deals are a lot more work, they take a lot more time, they tend to fall through a couple times before you get close but eventually you can have those deals close.
The other thing is that you’re gonna be paying a bit of a premium here but in some cases, it is a fake premium. You just want to make sure it’s a real premium. I don’t mind paying a premium if it’s a fair market value of that business. I never want to get in a situation where somebody’s just play in that world so they’re putting the lipstick on the pig and turning a four million dollar business into a nine million dollar deal.
Justin Cooke: So you don’t wanna buy a three million dollar Empire Flippers business for eight million dollars from some investment bank. That’s putting the lipstick on, I totally get it man.
Ace Chapman: [inaudible 00:35:15].
Justin Cooke: Yeah, that makes sense. Alright it’s interesting playing with the big boys there.
Alright lets do a wrap-up of the episode. We talked about where you can find these larger deals. First, you mentioned the brokers, we talked about using your professional network, we talked about niche industry leaders. I think those are really good for seven figure deals, I think you’re gonna get a lot of seven figure deals there.
If you’re talking eight figure deals, you can look at tier two competitors to midsize companies, maybe private equity and investment banks for some of the eight figure deals. If you’re doing research to find these deals, look for an in by either stalking the founders or the C-level team on LinkedIn, on social media, finding mutual friends that can give you an intro rather than going to the contact page or trying to do cold email, that’s gonna get you a lot more rejections or no responses which are really difficult when you’re trying to find the right deal.
The larger the deal, the less there are and the harder or more competitive it may be to find and that’s due to the gap. The six figure deals, people that have cash can buy those ones, even in the low seven figures and the eight figure, let’s say 20 million plus, you got private equity investment, make shopping those with business analysts, spamming all day but that couple million, up to 15 million is an interesting area. You might be able to find some really sweet deals that are too small for a private equity investment banks and just too big for the cash typical buyers that are shopping brokers or marketplaces.
Alright Ace that’s it for this episode, I hope you dig it. Please head over to WebEquityShow.com and leave us a comment to let us know what you think, please do check us our on iTunes and leave us a review when you get a chance. Next week we’ll be digging in to how to use professionals to do your due diligence. And we’ll see you next week!
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