Big Deal Small Business: Live Deal Process Update (02/07)
February 7, 2022 | Issue #60
Just reached home from an excellent weekend in Orlando at SMBash. I’ll share some thoughts & learnings coming out of the weekend later in this post, but first a quick deal update.
Prior posts related to the deal:
12/02 Update - discussed seller relationship
12/15 Update - discussed investment memo
12/23 Update - discussed APA elements
01/05 Update - discussed Reps & Warranties
01/21 Update - discussed deal stress & fatigue
Latest progress:
Closing checklist items are roughly all done except for the deal documents
Reached a general agreement on all open issues, just have to get them turned into legalese that both lawyers can agree on
I missed a couple weeks of posts primarily because we were in the machinations of deal doc back & forth with the Sellers. The posts would’ve just said, “I’m stressed out and trying to get the deal done,” so I clearly didn’t have much to write about.
At this point, I’m just trying to wrestle & drag this deal across the finish line. As soon as we get the docs finalized, we can close…so hopefully, we’re less than 2 weeks away from closing.
I signed my LOI on November 19th, so if all goes well, we can get the deal closed inside the initial 90-day exclusivity period. It’s been a ton of work, especially with the holidays in that period, but I can’t wait to get started.
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Lessons & Notes from SMBash
Big shout-out to the SMBash organizers for putting on a great event. There was an incredibly high ratio of people doing cool shit. It felt like everyone there was somewhere between 1 year behind me to and up to 7 years ahead of me - just an incredible cohort of folks to learn from.
While I'm sure you're sick of all the tweets/threads talking about it, I hope you'll bear with one more.
For me, the timing couldn't have been much better. I'm at a stage of the deal where there's honestly not that much to do - I'm just twiddling my thumbs waiting for the sellers to respond to documents, just stewing in my own impatience & anxiety.
Getting out of the house and across the country was a much-needed breath of fresh air.
In addition to a nice break, I came away with two mindset shifts:
Getting on the Front Foot
Getting into the Owner Mindset
Getting on the Front Foot
You couldn't walk away from SMBash without feeling inspired & confident. I've been feeling the nerves over the past month as the reality of buying a business nears.
There's just so many things that can go wrong, it can feel paralyzing. I've been spinning out a bit over it.
At SMBash I heard story after story of things going wrong, guys getting through it, growing their businesses despite it, and laughing about it now.
Doesn't mean it wasn't brutally hard at the time, but they got through it.
I'm ready to get on the front foot and not be governed by fear. I was inspired to hear business owners take charge of their business post-closing and driving it through important changes.
This is all caveated by the usual "don't break things too early" and everything. I've fully internalized that. But I think I'd perhaps over-indexed to it to the point where I was 100% focused on "how do I keep the business flat" after closing. I've modeled in a meaningful EBITDA decline in year one.
The conference gave me the greenlight to think bigger and more aggressively. I know I can grow this business - once I've gotten through the basic learning phase, my goal isn't to hold it flat. We're going to grow.
Getting into the Owner Mindset
Being in a room with a bunch of searchers, investors, advisors, and operators really highlighted for me that owners are living different lives.
They're a lot lonelier than most people. Their employees, friends, and family don't really understand their role. They can't complain or commiserate to those standard support groups. It was clearer than ever how valuable groups like SMBash can be to folks in the owner seat.
More concretely, I could see how owners are constantly testing & iterating. They're living in constant uncertainty with decisions to be made.
Coming from a professional investor world, I'm very comfortable living in that uncertainty. My job is to assess risk, price risk, and make decisions without all the facts.
Listening to owners talk about their businesses highlighted that their decision-making process isn't all that different. Business owners, like investors, are constantly making risk assessments. New hires, new equipment, new service lines, new acquisitions.
There's no "magic" there - there's no secret formula that is revealed to you on the day you sign the PG and become an owner. It's just ongoing iteration and risk-taking, day after day.
The key difference I've noticed is that investors do a TON of work upfront, and then make a big decision aka deciding to invest in a business.
Owners do far less work upfront on any given decision, and are making dozens or hundreds of decisions in a shorter timeframe. The pace of decision making is far higher.
As I inch towards closing, SMBash helped me prepare to take off the investor hat and put on the owner hat. While I'm suitably nervous & awestruck at the responsibility, I also can't wait to dive in.
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Conclusion
That's all I got for today. Thanks again to the SMBash organizers, I know I learned a ton and can't wait to be back next year.
To all the highly experienced operators and investors at the event, a thank you to you for your generosity in terms of sharing insights & lessons openly & candidly.
As always, I’d love to hear your thoughts & feedback. You can hit reply to this email or find me on Twitter.
Thanks,
Guesswork Investing