My mentor always kept an inventory of the skill sets and interests of people he knew so he would have certain pieces in mind to put together his next deal.  This networking tool came into play for me on business #9.

I found business #9 on BizBen.com.  In many ways it was a perfect fit.  It was 10 miles from my home, highly profitable and a great niche.  The seller was running the business at 52/0/10/38 and, like so many other of my deals, he was burned out and motivated to sell.  The only problem was that the company was a civil engineering firm, a discipline outside of my expertise.  The owner was the only licensed engineer, so the new buyer (ideally) also needed to be a professional engineer. Upon learning this, I realized how I could use this fact to my advantage.

The business was priced very high, but finding a buyer with the capital, skills and engineering license would be difficult for the seller.  My brother-in-law proved to be the first piece of the puzzle.  He is a licensed engineer and was looking for a new opportunity after being in city government for 20 years.  He was immediately onboard.  I also added an additional investor to spread out the financial risk.  The seller was tough, but he liked our team.  Knowing his business was a hard sell, he started to move on price. However, the terms turned out to be another obstacle because the seller was not willing to follow my usual 50% down 50% seller-financed model.

The second puzzle piece was financing. We went back and forth many times, struggling to find middle ground.  In the end, we got our price and he got his terms, 70% down, 30% seller-financed for 54 months at 6% with a personal guarantee from my brother-in-law.  I had avoided personal guarantees up to this point, convincing the owners that the business is the seller’s security.  For my brother-in-law’s experience and personal guarantee he was named president in charge of daily operations and issued 1/3 of the outstanding shares of stock.

The final piece of the puzzle was a collection of things I try incorporate into all the businesses I buy, strong accounting practices, efficient operating systems and sufficient working capital.  Luckily, business #9 was the cleanest, neatest business I had ever owned.  The engineering business has minimal inventory; we sell designs and drawings.  It is a great business provided you have work.   We took over the business in the middle of the cellular tower construction boom and we did millions of dollars of cell tower designs.  Fortunately, the seller’s niche paid the business off quickly.  Since then, the company has had to adjust to changing market conditions.  The cellular business became super competitive and dried up with the 2008 crash.  We were blessed to segway into solar and wind energy projects, but that market is developing slowly . The business will need to reinvent itself to continue to thrive.

cell_tower

Cell Tower

Shiloh_wind_farm

Shiloh Wind Farm, Solano County, CA

 Keys To Success

  • Business deals are like a puzzle, the pieces need to fit.
  • Look for great businesses, regardless of your skills.
  • Focus on running the business and leave the rest to the right talent