What I Learned Last Week 5.10.2024
Curating the best M&A, SMB, and EtA-related content since 2020.
Hello Friends!
In this week’s issue of What I Learned Last Week:
📰 Articles
🧵 Best of X (Twitter)
🤔 Other - SBA Pre-Approval Myth
🗓️ Events
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by:
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📰 Articles
I summarize, so you capitalize.
The Role of Quality of Earnings Assessment in the Deal Process
The article from Silverwave discusses the value of a Quality of Earnings (QoE) assessment for acquisition entrepreneurs. A QoE provides a detailed evaluation of a target company's financial health, assessing aspects like revenue sustainability, expense management, profit margins, cash flow, and balance sheet stability. It emphasizes the importance of having such an assessment done by an outside firm to ensure objectivity and expertise, highlighting the benefits in terms of risk mitigation, negotiation leverage, and securing financing.
Key insights include:
A QoE review helps identify potential financial inconsistencies and risks.
Outsourced QoE assessments provide unbiased financial analysis and expertise.
The cost of a QoE can often be incorporated into the acquisition deal’s financing.
QoE reports are useful in negotiating terms and prices during acquisitions.
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Maximizing Value in M&A: Leveraging Business and Real Estate Synergies
This How2Exit article discusses the strategic use of real estate in M&A, as explored in a podcast with Dan Taylor. It highlights the potential of leveraging business-owned real estate to maximize investment returns, emphasizing the importance of targeting business owners aged 65 to 75. Taylor's approach involves buying businesses with real estate, optimizing the property's use, and selling the business while retaining the real estate to lease. This method allows for significant value creation and investment returns by repurposing underutilized real estate assets.
Key insights include:
Real estate in M&A can significantly enhance value and ROI.
Demographic targeting can identify optimal acquisition opportunities.
Repurposing real estate according to its best potential use can unlock hidden value.
Strategic real estate management transforms business and investment outcomes.
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Q1 SaaS M&A and Public Market Report
Software Equity Group (SEG) released its Q1 report highlighting public market M&A activity in SaaS. While not 100% relevant to private SMB transactions, it does provide good insights into deal volume and valuations.
🧵 Best of X (Twitter)
I scroll, so you don’t have to.
Recruiting talent is the biggest challenge for most businesses. This thread offers some tips…
This is a must-read. Make sure your deal pencils out if you’re using the SBA…
Got a B2B deal and need capital? Check here…
In startup investing, it’s common wisdom that solo founders have lower success rates. Interesting to see a somewhat similar trend in the EtA space…
Little things can make a bit impact…
The people have spoken. Don’t shy away from taking on investors…
🤔 Other
SBA Loan Pre-Approval
There was a great discussion on Searchfunder around the concept of loan pre-approval letters. The forum post and the subsequent comments center on the topic of obtaining pre-approval for an SBA loan before an LOI is in place for a business acquisition, particularly within the context of enhancing a buyer's attractiveness to sellers who may also be considering all-cash offers.
Pre-LOI Pre-Approval Concept: The original poster queries whether obtaining an SBA loan pre-approval is a trend and how it can be achieved without a specific deal on the table. The response from the community is largely consistent:
while there isn’t a true “pre-approval” for SBA loans, since these depend heavily on the specifics of the deal itself, lenders can issue letters indicating a preliminary assessment of a buyer's potential to receive financing.Broker and Seller Perceptions: Several comments emphasize that while pre-approval letters (often better termed as "pre-qualification" or "comfort" letters) are not definitive guarantees of funding, they can nonetheless bolster a buyer’s credibility. They demonstrate to brokers and sellers that the buyer is serious, has been vetted financially to some extent, and is likely capable of completing a purchase up to a certain amount.
Actual Utility of Pre-Approval Letters: Many commenters note that these letters are somewhat symbolic but useful in facilitating smoother conversations with brokers. They suggest that such letters affirm a buyer's financial readiness and serious intent, thereby potentially setting them apart from less prepared buyers.
Banker Insights and Strategies: From the banker’s perspective, these letters, while not deal-specific, summarize the buyer’s financial position, credit history, and business acumen, thereby giving sellers and brokers some assurance of the buyer's qualifications. The advice is to accompany any LOI with verifiable financial documents, management resumes, and credit histories to demonstrate transparency and readiness.
Challenges and Recommendations: Several participants acknowledge the challenges of competing with all-cash offers when relying on SBA financing. They recommend focusing on building a personal connection with sellers and emphasizing preparedness and financial capability through the pre-qualification letters, while also managing expectations about the complexities of financing processes compared to all-cash transactions.
Overall, the consensus in the forum is that while an SBA loan pre-approval letter does not provide a guarantee of loan approval, it serves as a useful tool in enhancing a buyer's credibility in the preliminary stages of business acquisition discussions.
Further reading: SBA Loan Pre-Approval in Business Acquisitions (duedilio.com)
🗓️ Events
INSEAD ETA Conference (May 11) - Fontainebleau Campus, France
M&A Launchpad Conference (May 11) - Houston, TX
IBBA 2024 Annual Conference (May 11-12) - Louisville, KY
Capital Camp (May 21-24) - Columbia, MO
Midwest Deal Summit (May 29-30) - Chicago, IL
Southeast EtA Conference (Sept 6-7) - Washington D.C.
Self-Funded Search Conference (Sept 30-Oct 1) - Dallas, TX
Main Street Summit (Oct 9-10) - Columbia, MO
Annual M&A Institute (Oct 10-11) - Dallas, TX
McGuireWoods Independent Sponsor (Oct 15-16) - Dallas, TX
Texas & The South M&A and Business Symposium (Oct 16-18) - Dallas, TX
National Summit for Middle Market Funds (Oct 27-29) - Palm Beach, FL
🎵 Listening: “Colors“ by Black Pumas 🎵
How did you like this issue of the newsletter?
⚒️Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
PrivSource - PrivSource helps you source deals and connect with transaction partners without ever paying a success fee.
X5 Deals - Proprietary deal sourcing for a great price. They do the outreach and send you relevant, actionable deals directly into your inbox.
Rejigg - Platform that connects searchers/investors directly with owners of off-market small businesses ($1M - $10M of revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7 to 10 new deals each week.
Kumo - 100,000+ deals sourced from thousands of brokers and marketplaces. Plus, AI-powered listings, robust data & analytics, and more.
Sterrett Law - At Sterrett Law, we offer Manhattan and Boston experience at Vermont prices. Specializing in deals under $10 million, we're your go-to partner for navigating the complexities of mergers and acquisitions without the hefty price tag
Search Fund Coalition - community for the Entrepreneurship Through Acquisition ecosystem. Monthly events and meetups for acquisition entrepreneurs.
Deal Sourcing Guide - a comprehensive list of business marketplaces, brokers, deal origination firms, and more.
💡 How I Can Help
Whenever you’re ready, here are a few ways for us to work together…
Schedule 1:1 consulting on deal sourcing, due diligence, M&A ecosystem, newsletters, entrepreneurship, or anything else you’d like to discuss
Promote your brand to business buyers, investors, SMB owners, and other M&A participants by sponsoring this newsletter
Assemble your M&A deal team with DueDilio
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