I Acquired 29 Businesses in the 1990s and Here's What I Learned

 Summary

In this episode of the Top M&A Entrepreneurs Podcast, Jon Stoddard interviews Ted J. Leverett, a seasoned expert in business acquisitions. Ted shares his journey of acquiring businesses, the challenges faced by searchers, and the importance of having a strong advisory team. He discusses financing strategies, negotiation tactics, and the role of a business buyer advocate. Ted emphasizes the significance of building relationships in business transactions and reflects on how his career in M&A has shaped his life.

Takeaways

Ted Leverett has authored books on business acquisition.
He acquired 29 businesses in the 90s and now advises buyers.
The acquisition process involves multiple steps and due diligence.
Searchers often struggle due to lack of knowledge and preparation.
Advisory teams are crucial for successful acquisitions.
Financing options include seller financing and creative financing.
Building relationships with sellers is key to successful deals.
The importance of having financial capability when searching for businesses.
Ted emphasizes the need for a marketing plan before approaching brokers.
His career in M&A has led to financial independence and personal growth.

Watch the Interview

Transcript

Jon Stoddard (00:02.926)
All right. Welcome to the Top &A Entrepreneurs Podcast. Today I have a guest. His name is Ted J. Leverett. He's the author of a couple of books, How to Prepare Yourself to Find the Right Business to Buy and How to Buy the Right Business the Right Way. I've bought both books. love this one. This one really helped me in the conversation I had with the other. Welcome, Ted. How are doing? I'm doing great. Yeah. Thanks. So thanks for joining us. I have a list of questions for you here that I'm just going to jump into.

You acquired a number of businesses in the 90s. And I read your bio here in the back and said 29. But you haven't a while. Do you still own any of these? Did you sell them all? And I know that you're now into this move to assisting searchers and buyers. Tell me that story. No, I don't own any of them. I'll tell you in a second about a deal I did in 1980 that really set the pace for what I do now and kind of what I

try to cause other buyers to do. Can I do that? Yeah, absolutely. This was a really cool thing. It was a four step process. The deal was 1980. I bought 10 travel agencies and then I bought a school that trained travel agents. And then I bought an ocean cruise planning and excursion business. And that was just step one. Step two, I combined all those businesses in to my company.

That means the agencies, the school, and the cruise operation all under one umbrella. And then step three, I converted that company to a franchise. And I sold one franchise. And step four was when that franchisee bought the entire company and rolled out the concept nationwide. So this was back in 1980.

when franchisee, well actually, yeah, when franchisee was just getting started in travel and travel agencies were booming. But you know what, after that and after those other businesses, I was done. I'm really not meant to run companies. I don't have the personality. I'm an advisor. You're an advisor, kind of a consultant deal. Are you a big fan of, I think I've mentioned you also have a buddy named John Martinka that

Jon Stoddard (02:23.01)
He's I got his books too. then your fan of Alan Weiss and his methods. Ellen Weiss materially changed the way I did business and John Martinka did business. And so did Gerber's book, the E-Myth. In fact, if it hadn't been for the E-Myth, I wouldn't have done what I've done. I mean, it was that simple. John Martinka was my business partner. First, he was my client. Then he was my business partner.

Yeah, from early 1990s. And now he's out in Seattle, where I used to live, and his business is booming, and he and I are in touch almost daily. Yeah, very cool. Thank you. So I am in a mastermind. And one of the biggest challenges for every thousand of these people is finding businesses. What would you say the most? And that's what I my opinion is, what would you say the most important area of this part of the acquisition game is?

Well, right now I'm tracking 96 searchers. Most of them have been searching for almost two years. They haven't done a deal. There were some things they do wrong. I made a checklist because this is why searchers just don't do deals. First of all, don't forget anything. What'll happen in search is you get this tunnel vision and it causes us not to notice what's going on. And we forget things. The second thing that...

that I see and it has to do with those 96 searchers is they don't know enough about how to search. And what that means is you have to avoid or beat the buyer competition. Right now there's record buyer competition because of people losing their job and hating their job and losing their business. There's no room out there for amateur searchers. Otherwise you get to outbid the dumbest buyers. One more thing on my list, but keep in mind that searching is different from finding. When you find something,

you're catching a tiger by the tail. And the first thing that searches need to do, they don't do it mostly, is know how to handle what we call pre-LOI due diligence, letter of intent. It's the kind of stuff you do before you spend money on an LOI with a lawyer, because once you do that LOI, you are committed. And if you think you can change those terms, good luck. So we use a form, it's actually a process, key performance.

Jon Stoddard (04:47.182)
indicators for pre-LOI due diligence. Learn all about it. Now, why is this important? My clients are buying businesses where they're bringing in, this is they, the buyer, $20,000 to $80,000 per month. So if it takes a searcher an extra month to do a deal, he just kissed away what, $50,000, $60,000, $80,000 bucks. That's the value of searching.

Yeah, I met a guy on search funder and we met up and he said he's he reviewed 1000 businesses and I said 1000. Are you kidding me? Like I said, just send me some deals that you like and I'll take a look and I looked at a couple of them and I said, well, I mean, there's not going to be any perfect business to buy here. mean, look, all these things of like, there's some gold mines and five of these I could see right off the bat.

Yeah. You know, as you read in that one of those books, there are no perfect businesses. And if people are waiting for that, good luck. Yeah, good luck. Yeah, I think that's it. I think you mentioned that in both of those businesses, how to buy the right business the right way and how to prepare yourself. So what types of what do you look for in a kind of clock? Now, let's go back to what you actually do now. You don't buy businesses anymore, but you assist people searching businesses. So

What kind of clients do you look for in those characteristics? Because you don't want to get in with somebody that just keeps looking through a thousand businesses. They're just in it for the thrill of the hunt and not the game. it is. Well, the reality is to do a good deal, you are going to look at dozens of businesses. It's that simple. Otherwise, you're leaving money on the table. Here's what I you know what? I'm not looking for clients. I wish I could. If I could, I'd have more clients.

Yeah, they're finding me. So when they find me from my books or some other place, here's how I screen them. I want to know that they realize that they don't know what they don't know. If they're a know it all, I'm done. have no time for them. They need to be the kind of people who are willing to assemble an advisory team at the same time they might hire me. If they don't have the right lawyer and accountant, I'm not available. So one of the things I help them do is pick or at least screen.

Jon Stoddard (07:13.858)
the right lawyer and right accountant. We want it upfront because there are a few things that happen upfront that the searcher needs to get clear with the lawyer and particularly the tax accountant. The other thing I'm looking for to find out whether somebody is worth my time is they need to understand that concept of lost income opportunity. If I have to explain to them that it's costing them every month while they're dithering, well, they're not my kind of person.

They also, and I make them do it just like brokers make them do it, just like sellers make them do it, just like banks make them do it. I make them show me upfront their financial capability and their managerial capability to do the kind of deal they intend. Right now, these record number of searchers out there, they either don't have the money or they don't know how to buy a business or if they did buy it, they don't know how to manage it. I guess I can't say it any other way. Yeah.

Well, so what happens if you're kind of weak in one of the characteristics? And I'll tell you, I know a lot of people in my mastermind, let's say, financial capability. mean, a lot of them could not put up 10 to 20 % to buy a business. What do you do there? Well, that's where we have that advisory team. If we have people on our team that have a proven history of facilitating deals like we want to do, and they are proactive, not

reactive and they're good playing together on the team. When the searcher or the buyer stumbles over the normal speed bumps, and there are going to be about a thousand of them, they pick up the phone or the Zoom or the email and they send off a message to the lawyer, the accountant, me, whoever's on the team, and 20 minutes later they have the answer. It's the do-it-yourselfers out there who are wasting time and blowing themselves up. Yeah, yeah. I agree with that because

I've heard the phrase in our mastermind called a deal team six, you need to have that in place. That's all your advisory. Lost income, that's just a motivation to just like, to make it happen. So you have to take massive action on the front end. And then the financial capability, which is, do you have the capital to raise that and you're gonna have to go out and find investors. That's a different skill itself. Yeah. Well, so how is it?

Jon Stoddard (09:35.694)
How important is it to raising capital to searchers? Somebody says, got a beautiful business. It's 10 million bucks and I'm going to need 2 million extra dollars. Money talks, bullshit walks. It's hugely important. And by the way, and when I'm screening searchers, for example, this morning I had an interview with a searcher and he was a little, let's say put off when I said to him, if you can't show a business broker,

your advisory team, the bank, a seller, that you have the cash to do the deal, they're not going to talk to you. They don't need to. There are too many buyers out there that do have the cash. The other thing that we need to be able to know is sellers are financing deals. I beg clients, and actually I don't beg them because my clients are smart enough to know, we do not buy a business unless the seller carries some of the paper. It could be 10 to 20 percent. I did a deal last year,

I think the seller carried 50, five zero percent of the purchase price. And then finally the bank, you got to have a bank. People say, well, what about SBA? Well, that's not always a smart move. Believe me, do your homework. Yeah. You know, 90 days or more sometimes. it's not ecology. It's not only the time, there are things that happen in the process of trying to get an SBA loan that a lot of sellers don't like.

I don't want to go into it now, just do your homework. But don't forget creative financing. I've done lots of deals where we were able to do things with the business's money, be it cash flow or its assets to get a deal that I even wrote a book. You don't have it, John. I tried to order the book. It's out of print on Amazon. I know, but you can get it from my website. Listen, how to get all the money you want for your business.

without stealing it. That is my number one selling book. came out in 1997. It used to be in bookstores. Now it's self-published. I'll get around to Amazon someday, but right now it's on the website. Yeah, I'll go there. Thank you very much. And do you work with sources directly? Excuse me, that, you know, say if I do need, you know, five, I got the 1.5, I need $500,000 to make this deal happen. Like, can you like just work with sources to do that?

Jon Stoddard (11:55.51)
By sources, you mean money sources? Yeah, money sources. Yeah. OK. I don't work with them directly, but I show my clients how. mean, sources of money don't want to meet Ted Leverett or a bank or excuse me, a lawyer or accountant. They don't have time for that. They're in the money business. So what I do is put my buyers through a training program so they know how to talk to sources of financing. And I beg them this one I do beg on. I beg them to have at least at least three

banks willing to at least look at the size and kind of deal they're going to do and the locality they're going to do it. And we don't just apply to one, we apply to all three or more. Why? Because what comes back are wildly different proposals on interest rates, the cost of getting the loan and other important terms, things like the personal guarantee. There are just many things if you can get the banks to bid against each other. Yeah, I you mentioned that in the

how to buy the right business, how to prepare yourself, find the right business, especially when there's a story in there where the guy went out to three different businesses and got different terms. What's your overall strategy for acquisitions for your clients? Somebody starts working with you and you put them through, of course, you're going to qualify them first, then what happens? Well, this is when I learned the hard way.

I won't go into it here, it's in the books. The first business I bought was an ever-loving disaster, wasted a year of my life, tens of thousands of dollars of legal fees, a mess. So here's what I know. Focus on mature, profitable, fairly priced businesses that have proven sustainable competitive advantage. And I like businesses, I want my clients to like businesses.

that are a platform for more acquisitions. Because you see the big money is not made in running businesses. No way. Yeah, it's made in trading businesses, &A and selling those puppies. my God. That's why I'm in the middle of your partner's growth company by acquisition. So I have to mention that. Do you have a step by step by step process that somebody sits in like, hey, this is what I want you to do this week. This is I want to do that next week.

Jon Stoddard (14:20.46)
Yeah, in fact, John Martinka and I developed it. I think we finally got this solidified in the mid 90s. We call it the 22 step business acquisition sequence. Now, he may not use exactly those words anymore because that's what we use way back then. I've stuck with it. But since he and I, you know, we write books and stuff, we try to brand it a little differently. But we know exactly what's to be done, in what order through search, due diligence, financing, appraisal.

negotiations and transition into the company. Yeah, yeah. And what happens if you find somebody that doesn't do, know, just kind of falls flat? mean, life happens, you know, kids or something like that, just not following through what they should be doing. And they come back and goes like, I just, it's not working. I can't find a business. Well, if you want to bring home $50,000 a month, that's about

12,000 a week, that's a couple of thousand a day. I just remind my clients time is money. Get off your ass, get off your ass. Well, there is one more thing. We really try to get them to prepare themselves for search where they market themselves. For some reason, searchers think that they're valuable. Well, they're not valuable at all because they're just too many of them. So what we have to do is prepare ourselves to be the number one choice of brokers and sellers.

That's a big job. just this morning I talked to a searcher. I just completed the job. We just for the marketing plan, just to prepare him to go out and search 137 emails, about 25 zooms and a dozen documents. That was just the marketing plan before we talked to the first broker and first owner. When he does, he'll be the first choice. Yeah. What do you for a person that's a newbie, how many do you think that has to be in the top of the funnel?

go down. mean, some people say it's 100. Some people say it's 500. Some people, of course, some people look at it as like 1000. Yeah. I'll say it one more time. If you want 50,000 a month, that's 12,000 a week. That's a couple thousand a day. The bigger the funnel, the sooner you get the deal. There you go. Yeah. Do you work with searchers, buyers on acquiring and non controlling interest, let's say less than 51 % of the business?

Jon Stoddard (16:47.72)
Nearly all my clients purchase businesses where they have a controlling interest, not necessarily 100%, but they are in control. Some of the best deals is where the owner stays on for a while and the buyer comes in and becomes an investor working partner and the former or the existing owner and the buyer carry the business to the next level.

that makes the business more valuable, the seller exits then and they get a bigger payment at that time than they would have if they would have sold the business upfront. You're booked out because I had a conversation yesterday with a seller and he said, well, what are you looking for? And I said, look, ideally number one is that the seller stays on for another year, two years. But if that doesn't happen, that there's a number two qualified to step in that spot. And he goes, that makes sense. And they just went to the next question.

It was like just a check mark off on him. Do you ever get involved in the negotiations with the buyer seller? Well, there's a big risk there. If I get involved, if a lawyer gets involved, if an accountant gets involved, that's going to force the seller, the owner to bring in their lawyer and accountant at the minimum. Trust me, those people are not going to know enough about deal making. And that's when you know what gets the fan. So yeah, I am heavily involved.

all through negotiations, which begins the first day of search, but I'm behind the scene and I'm rehearsing with my clients, all the stuff that comes up. And when it comes up, they're on the phone or zoom or email. And as he said, she said, and I helped them understand what the next move needs to be. Now, sometimes I do wear the black hat. Don't like to do it, but it's better I wear the black hat and tell the broker or the seller the bad news and have them be mad at me.

than the searcher because he it's all as John Martica says, it's all about relationships and our buyers and searchers cannot afford pissing off brokers and owners and sellers. So there are those moments when somebody like me needs to tell the owner or the broker what they need to hear and they get mad. But the searcher, the potential buyer still keeps the relationship. Does that make sense? Yeah. You got you both brought that up in your books.

Jon Stoddard (19:07.404)
both of those books and John's books about the relationship to develop. Like the first call is not really talking about numbers. It's talked just like, hey, you know, what are you doing? What are you, where are you going to go? What do you want to do with the money and building a relationship with the seller? You know, I tell my clients and any of you listening, remember Google the word likeability, spend an hour learning about that. You'll get it. Yeah.

Yeah, I agree with that, especially if you're going to keep the seller on for another year or two years, but it'd be like, like it. I have a buddy that's bought a number of businesses and he went through that same process of, you know, like a bunch of the first ones he just bought on numbers and he goes, man, they just like worked out. I couldn't work with the person. Now it's the first criteria is do I get along like the other person and do they like me? Right.

You know, this cultural thing's big. One of the biggest disasters I saw a client experience, I represented a white collar guy, top executive. He bought a blue collar business. Guess what? He didn't fit it at all. They didn't like him. He didn't like the employees. And that whole deal went sideways after we bought the company. Yeah. Yeah. I had a buddy that bought a toilet making business manufacturer and he was like, you know, like a

software, high-brow guy, and he bought a toilet paper, but he loves it. He loves it because he's from Ohio. He's in the middle of the country. He's just fit for him. Yeah. So how many, I get curious, how many clients do you work with any one time to help buy a business, whole process? It kind of depends on how much free time I want. Yeah. And it depends on the complexity of the work.

So if it's a very complex job for a larger than normal business, I will have fewer clients. If I'm brought into, let's say, only to help in search, well, I can have a lot of searches running at one time, a lot. If I'm brought in on due diligence and it's a simple deal, I could have four, five, 10 of those. If I'm brought in for what John Martinka and I call a full package, that means I'm hired day one and I stay until after closing. Well, then that's fewer clients because

Jon Stoddard (21:31.616)
we're going to be in bed with them all the way. But I never know the number. I can't say a number of clients because it really does depend on the size and type of business and how prepared the buyer is going to be to know what it takes to get the deal done. Yeah. When you said we, are you teaming with? I mean, I noticed that, John, you are a business buyer advocate. You're a team and work together. The only person in the world.

authorized to use the title business buyer advocate is John Martinka in Seattle. That's my registered trade name. If you see anybody else using it, they're not trained by me. I don't approve them. John and I, do on the phone or Zoom or email check in with one another if there's something we're stumped with. But in a day to day basis, no, we do not share clients. We don't work on the same cases together.

But I use John the same way I use the lawyer and accountant, and he does the same for me. Different perspective. Do you ever get stumped anymore? I mean, after 29 businesses in the 90s and working with probably thousands of people in last 25 years, you ever get stumped? About every day. Yeah, now most of the time I don't have to go to John. Why? Because I'm a great note taker. That's how come I could write those books. So I just go to my billion, am I kidding? Or maybe not.

billions, of thousands and I look stuff up in my own system. I have to look up my own stuff. I'm going to say this book, if you get any book today, if you go to Amazon, get this book because it's so detailed. It has about 40 questions that what to ask the seller on your conversations before the LOI. It is a fantastic list to ask. That you should not forget. Hey, John, you know what I do with the clients, those questions?

We rehearse them with Zoom. My guys can get, they can win an Academy Award when they're asked those questions, because we have canned answers for them. We don't have canned answers generally, but in their own voice, we create the answers that fit their personality and what they're trying to do. So brokers and owners go, wow, this guy's the breath of fresh air. It makes you sound, I read this book and I had a conversation with Seller. It made me sound like I was just much more experienced than I was, just like,

Jon Stoddard (23:54.774)
had these straight answers. I wasn't thinking around, my eyes weren't darting off, I wasn't thinking about what to say. So how do you, now as a business buyer advocate, you're working for Sellit, how do you make money in the process? What? I try to price my fee on value, not hourly. I do sometimes work hourly if somebody has a question, but generally I'm hired for all of search or all of due diligence or the entire shebang.

So I quote a fee for whatever that module of work is or the entire fee. I try to get people who are thinking of hiring me to understand what it's gonna be like for them, what it's gonna cost them. Working on their own or only with a lawyer or accountant or me on the team. I try to position myself not as the quarterback of that advisory team, but let's say I'm behind the scene.

having a lot of say because I know how lawyers are supposed to behave and accountants are supposed to behave. And if they're not behaving, most buyers and searchers don't know it. I'll know it. I can hope diplomatically with my client privately say, here's how you can nudge that accountant and lawyer into reality. So that's really big. And it determines my fee. If someone tells me I'm a do it yourself for Ted, the fee is going to go all the way to the top. set my fees to be my maximum fee.

to be about one half of what business brokers charge sellers. Right now brokers are charging sellers for small and mid-sized businesses about 10 % sale commission. Now they have to charge that big number because they don't sell most of their listings. So they got to really, let's say make a lot of money when they make a sale. In my case, nobody hires me unless they're gonna do a deal. Because see, I get paid upfront for each of those stages. I get paid upfront. Yeah. So nobody-

Nobody hires me unless they're going to do a deal. So if they hire me only for one stage, I quote a G for that. That's the fee. I stay with them usually up to a year, unlimited, whatever it takes to get that thing done for a year. And your success rate on that sounds like it's pretty high. What would that be? Your success rate on that somebody's. Well, you know what? It's it's it's pretty high, but but stuff happens and I'll tell I'll give you some examples.

Jon Stoddard (26:16.318)
I've had people who say, I only need you in search. Well, they're delighted with that because for less than 10,000 bucks, usually they're meeting owners. never going to meet without me on the team. They're going to do a deal. Maybe they don't keep me on the team, but if they keep me all the way through, they are going to do a deal. Except I've had cases where people have paid me a ton of money. I'm talking tens of thousands of dollars. They thanked me and said, Ted, someday I'll finish putting to use.

But when I told my employer I'm quitting, I got a big promotion and a bonus and I think I'll stick it out for a few more years. That happens. I've had clients die. I've had clients with last year get COVID and die. I've had the biggest one that made me so sick is I've had several clients who just before closing their spouse says, I don't want to do this. And it results in a divorce or a big fight and the deal goes.

turtle. Yeah. So so nobody out there is getting 100 % done deals, believe me. But I'll tell you what, they did a poll of in our mastermind, there's 1000 people and searching and being able to everybody what they do is the first thing they do is start going to the broker sites, you know, because it's that's where the marketplace is. And that's where advertising and your book tells the majority of businesses are not being advertised. So

You know, you got to be kind of a salesperson, get out there and do some marketing and do some networking and do all of that, all of the above to get that massive action happening in Deal Flow. And this is why searchers need to create their own marketing plan before they talk to the first broker or first owner. It's all about being first choice. Yeah.

That's amazing. I don't have a lot of time left with you. How does this &A game change your life? I mean, you've been doing this for 30 plus 40 years now since the 90s. So yeah, how's it changed your life? That's why I grew this goatee. Show my time in grade. Well, first of all, it made me financially independent in my 30s. In my 30s, I've been lucky enough, or actually just because I work hard,

Jon Stoddard (28:37.474)
to have an income in the top 5 % in the USA every single year I work full-time in this business. So this is a great business. Everybody knows people in the &A game make a lot of money. But I'm not in it just for the money. As John Martinka can tell you, for three times in my life, I retired for five years. I didn't come to a complete stop. I would cherry pick a client once in a while. But mostly what I did is,

One year I became a restaurant credit and wrote a book. Another year I wrote a book for the Olympics that the state of California bought and gave out when it was in Los Angeles. I invented a board game that sold a bazillion copies. So I take these big breaks. Right now I'm not at a break. What time I have left? I'm trying to do deals. Beautiful. Thank you. I want to appreciate. Thank you for the time.

Hey, whoever's listening to this, if you like what you hear, you know, subscribe to me on my podcast or a YouTube channel. And if you would like Ted Leverett's books, go to his website at the Business Fire Acro, Advocate or get on Amazon because they're there. And that's a, I'll tell you, I love that book, how to buy the right business the right way. What's got in there really is a helps you leap forward. So Ted, thank you so much for spending time with me today.

Okay, John, thanks. And for the rest of you, be careful out there. I am going to stop recr-