28 lessons from buying 20+ companies

A quick list for you to read before we jump in…

It was sent to me by a fellow entrepreneur and business builder, co-founder of a very large gaming company.

The list is compiled by Xavier Helgesen – co-founder of Enduring Ventures – where they buy exceptional companies and build them to last forever.

Here’s everything I know about buying businesses after 20+ acquisitions and looking at thousands.

1. Owner operated businesses are super efficient. Owner does six jobs. You will probably spend more to professionalize. 

2. Only buy from people who have demonstrated values of honesty and integrity throughout the process. 

3. Stock purchases should be at least 25% cheaper than asset purchases. You can’t write off the acquisition price plus you assume historical liabilities. 

4. Adjusted EBITDA <> EBITDA <> cash flow. Look for cash flow.

5. Look for rich owners. 

6. Look for businesses that have survived multiple economic cycles. 

7. Make sure you are not in a commodity business. 

8. Everything is negotiable. We have done 90% seller financing three times. 

9. Everyone wants a raise after you take over. 

10. Make sure management only gets paid bonuses when they distribute cash flow to owners. 

11. Pay for a really good, but very efficient, lawyer. 

12. Pay for Quality of Earnings even on small deals. 

13. The best way to find a CEO for a business is to ask the seller who has asked about buying it in the past. 

14. Look for the smallest, weirdest niches. Less competition, greater margins. 

15. If you find a good enough deal, the capital will find you. 

16. Don’t underestimate how little you know about any given industry. Find an expert to help you. 

17. Businesses with real estate offer lots of creative financing opportunities. 

18. An owner who works “10 hours a week” is still doing five people’s jobs. They are the world expert in their business. 

19. Professionalizing a business with no management in place is probably too hard unless you are running it. 

20. Understand the working capital situation deeply and as a first order of business. The working capital adjustment can be a huge adjustment in price. 

21. Don’t incentivize anyone to close deals. You want them more excited to kill a deal - this means they will speak up if something feels wrong. 

22. Look at the duration of employment of employees. Lots of turnover indicates a toxic environment. 

23. Don’t take single channel risk (eg Meta marketing)

24. Share customer concentration risk with the seller through revenue shares or forgivable notes. 

25. Underwrite your downside like a lender. Could you sell the business or it’s assets to at least pay back the debt if you need to? 

26. Don’t fall too in love with the business. You’ve always got to be ready to walk away. 

27. Honor your word even if it costs you money. Once trust is lost with a seller, it’s over. 

28. Honor the owner/founder’s legacy after you close. 

If you're ever considering acquiring a traditional cash flow business, I believe this list is worth re-reading from time to time.

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Acquiring a traditional niche business is one thing, growing it is quite another…

The secret sauce to grow a traditional niche consumer goods type of business.

(Could be manufacturing, banking, finance, healthcare, construction, logistics.)

You have to ask yourself those three questions:

• How can you raise the average ticket? (cross-sell, upsell, down-sell)

• How can you raise the conversion rate? (Improving the offer)

• How can you have more traffic on your website? (SEO, paid ads)

All this requires more systems & processes; and less hope.

- - - -

Let’s say you find a traditional $400,000 cash-flow company

“Private equity says it is the most dumbest thing in the world to buy a company that small – they say it’s going to take the same amount of time to turn that company around as a big company. Use your leverage.”

Let’s look at some other things.

The guy has been running the company for 25 years. He doesn’t have a website. He doesn’t believe in google, he does no advertising. He’s got stickers for 25 years.

You can do the big boys multi-million EBITDA stuff in the future, but this particular opportunity is in front of you and more people should take advantage of it.

That being said…

We will sign the term-sheet next week.

They equip and maintain animal farms.

Designing young cattle barns:

• begging materials, slurry handling equipment,

• drinking devices,

• ventilation equipement,

• lightning,

• door systems, etc.

The founder just turned 50; he’s willing to sell 65% of the company.

Part of the same deal will be an acquisitoin of a e-commerce store which does $500,000 in revneue (all this is managed by 1 person); also the Finnish competitor which also does $500,000 in revenue.

With e-commerce we can sell product all around the world (they already have customers in UK, US and even from Japan.)

*Once the term-sheet is signed, I will talk to the banks and share the details with people who have shown interest in where we invest.

- - - -

There are different phases in one's career.

Although in most cases, especially in the early stages of building a company, 10% of time should be spent thinking and 90% doing the work.

In short, we need more doers and makers!

- - - -

Every week there are one or two interviews or podcasts that I listen to during my walks.

This time Interviewer asked a gentleman who founded a $40B AUM fund.

“In the early days when you started the fund, what were your respective skills when it came to investing and managing capital – all this in a very high pressure environment?”

His response to all of this: "I guess we did not overthink it…”

(A great lesson to all of us, isn’t it?)

But that was all. That was his take on the long question.

He added: “With $4 million and a management fee structure of 2% was an $80,000 in annual turnover which could not even pay a rent. So you’re all in – personally and financially.”

“Over time people naturally flourish where they’re best.”

Another very interesting thing he mentioned about the current economy:

“In the past years I’ve met a lot of people who wanted to make 10x in a year because everyone was throwing dices and it was double six.

Now I’m seeing a lot of people asking to make 10% for the next 10 years.”

We’re entering a new chapter where we are back to this compounding approach that our asset allocation should be able to generate.

- - - -

How has been the week in my small holdco world?

Traditional business - working on the term sheet I mentioned earlier. As always, I'll keep you updated.

When it comes to consumer loan company…

We found a local investor here in Estonia, a former CEO of a local bank, he is interested in investing $1,000,000 with 13% interest. It requires a short DD from him and that is what we are working on.

As I’ve said few times: Long term games with long term people.

Some US investors have been following this journey for some time and now have said they would like to invest in what we built.

Starting small and going from there. In his case, we start with $10,000

Take care,

Mikk aka PrivatEquityGuy

The list I shared with you at the beginning of the letter - here's a podcast with a co-founder of one of their portfolio companies - Amir Haboosheh from Snowball Industries.

They buy HVAC companies. By today, I believe they are doing more than $100 million in revenue.

Amir was very generous with everything I asked him.

(Links to Spotify Apple podcast, and YT can be found in the comment section below.)

Thanks a lot for following the journey.