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The Deal Room
[EP 219] Finding creative solutions to selling a business

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In this episode of The Deal Room Podcast, we talk to Roy Levy of Core Business Brokers. Roy and our host Joanna Oakey discuss some creative approaches to finding the right deal between a buyer and seller. Roy also shares a fabulous story of how creativity in deal structuring can create incredible long-term results.

Note: This has been automatically transcribed so will be full of errors!

Joanna:
Hi, it’s Joanna Oakey here and welcome back to The Deal Room podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal now today we have on the show, Roy Levy from Core Business Brokers, here to talk all about creative solutions in selling a business. Now Roy Levy is a corporate advisor specializing in business divestments, mergers and acquisitions in the SME markets and mid-tier markets across Australia and New Zealand. And in this episode, Roy and I discuss some creative approaches to finding the right deal between a buyer and seller. Roy also shares a fabulous story of how creativity in deal structuring can create incredible long-term results. So without further ado, here we go with our discussion with Roy

Joanna:
Hello, Roy. Welcome back to the deal room podcast. It is so good to have you on the show.

Roy:
Thanks, Joanna. Thanks for having me again.

Joanna:
My absolute pleasure. Now, before we get into the topic of today, which is all about creative solutions in selling a business, which I know is one of the things that you’re particularly good at Roy. Maybe just give us a quick background of your experience in business sales, who you are, how long you’ve been in the industry,

Roy:
Well, that’s going back a long time. So as you can hear from the accent, I was brought up in South Africa, and I emigrated approximately 25 years ago. So back in the day there, I’m a chartered accountant. And we were doing a lot of management, corporate management, management, training, etc. As well as mergers and acquisitions. And we actually listed our company on the stock exchange back in 1985. So that was exciting times. Since I emigrated in 1996. We went back into business broking started in a started our own company called Core Business Brokers. And since then have been working now 25 years here in Australia, and have gone from selling small businesses to medium-sized businesses. And now even into the mid-tier size, which is a nice space to be. And there are six of us in Core Business Brokers, and everyone’s a slightly different experience that enjoys setting up different types of businesses. So that’s who we all we boutique and we love doing what we do.

Joanna:
Brilliant, love it. Well, today we talk about a story that you have. And I love this story. Because it’s such a great example of a bit of ingenuity. And I think in this space, you have to be a bit nimble and flexible and able to come up with creative solutions. Because boy, no deal is straightforward, right? We all love to be pretty good at finding flexible ways to get things done.

Roy:
And you know, when you enlist your business, typically the vendors will tell you what you need to know not always what you should know. And we always try and do our own due diligence. And it’s not deep due diligence. We don’t go check it our records and all that. But it’s enough of due diligence, the end and evidence in the information we present to a buyer, we will pass muster in due diligence, otherwise, we wasting everyone’s time and money.

Joanna:
That is so clever.

Roy:
And you know, without experience asking the appropriate questions, we will find appropriate answers. And there are always some issues with most businesses. And once we know what the issues are, we can then suggest creative ideas to get around that objection, which we know is going to come from a buyer. And when the objection comes, we hope to have a suggested solution that may get him over those objections and seriously thinking about buying the business.

Joanna:
And so some examples of that. We’re going to talk today about another story. But before we get into that, I want to hear some examples here. What are some examples you’ve seen where you’ve anticipated objections and then you’ve sort of come up with a way to to get ready to deal with them when they came up.

Roy:
It’s a lot to do with a business when it has a technical bent or technical aspect, where the vendor is the expert in that field. So give you an example. We sold a manufacturing business company, in fact, it was during the COVID time the first cover locked down, believe it or not. And when I switch in to talk to the vendor, they had very sophisticated machinery. It was laser cutting, and the owner of the business was the factory manager. And he was the operator of a very sophisticated laser cutting machine. And then he had two other machines with two other employees. And I said to him, at the time, if you leave, who’s going to do their job, it’s quite a skilled job. And he said he does he didn’t know. So what I suggested to him at that point in time, is to put an advert in the paper immediately for someone to replace him so that by the time we’ve listed the business and marketed it, and started talking to people, that critical issue is going to come up. And hopefully, we’ll have an answer. He put an advert in Seek and a few others. And within a span of three weeks, he had structural engineers, it was COVID time and a lot of people that lost their jobs, he had six choices to make, he found someone who had been working on exactly that piece of equipment, but the older model, he employed him. So within six weeks, we had four offers for their business. And two of them who are not technical said who will replace either I’m not a technical person, I’m more of a sales and marketing drove. And we could immediately overcome that objection by saying we have employed someone who is already in training. So within three months, he will be an expert. So take that objection off the table. And that was a critical objection because it would have ruled out many of the qualified buyers. So we saw that as an objection coming up as it is a key issue. And we solved the problem and took that objection off the table before we even got into that filing negotiations.

Joanna:
I love it. Well, look, I think it’s a similar approach from a legal perspective as well, you know, we say, Okay, well, what might a buyer object to, once they get to the due diligence phase, for example, let’s make sure we tidy it all up, let’s make sure it looks clean, let’s make sure a buyer is not able to come and use due diligence as a tool to nudge down the price that they’ve already committed to. So, you know, I think it’s such a critical perspective, from a commercial from a financial accounting legal perspective.

Roy:
Absolutely and also, one of the issues is very often a serious seller/vendor will have his financials, reflected or correct. But the wage that he pays himself or herself is not market-related, because it doesn’t pay them for tax purposes, which is fine, it’s totally legitimate. However, when you’re selling a larger business, any buyer and their accountant would want to know that there is a market-related wage applied for every activity in this in respect of their business. So what we will always do is we will adjust the figures for their business to apply the market-related wage. And again, remove that objection, which we know is going to come. Similarly, when they own the premises in a related company for their business, it needs to be a market-related rate applied to the business. And again, we would make that adjustment if it needed to be made. So we remove we anticipate the objections with our experience, we’ve seen a lot. And we try and remove all those objections and minimize them when it comes. And you know, Joanna, buyers appreciate that because when they see all that, and they see that you’ve already adjusted to appropriate market conditions. They understand that this is serious, they’re dealing with someone serious, and no one’s trying to pull the wool over their eyes. And it gives them the confidence to move forward with negotiations and look seriously at their buyer in that business.

Joanna:
is about retaining that trust as well.

Roy:
Correct. Absolutely.

Joanna:
Yeah. And so let’s move on now, to this story. I love this story. I think you told me 22 years ago, when you had a little bit of difficulty in finding buyers for a particular business run us through what happened in that story.

Roy:
Yeah. So it was approximately 22 years ago. What happened was I had it was a small engineering business and it was quite technical. So a buyer who had just emigrated from South Africa as it so happened, came to our office looking to buy himself a business. And I showed him this business and he said, Look, I’ve got a background as a tool maker. It’s exactly up my alley. It’s what I like it’s what I can do, I don’t have the funds available. And because I’ve just landed in the country, a bank is not going to be lending me money without having the security of a property. So, unfortunately, I cannot buy their business. And a couple of days later, another person walked into my office and said, I’m looking for a business gave me some parameters, and I showed him various businesses, including this one. And he said That looks like a very solid business. But my background is administration, and sales marketing, I don’t have the technical skills, and it worries me that I’d have that gap. So what I did is, I contacted both of them separately, and I said, Come to my office next week for a meeting. At the same time they came, I introduced them to each other, they had a similar background from the same country, but they didn’t know each other. And I’ve told them that they are both in the business, in my opinion, one had the technical skills to drive the technical side, and the other one had the organizational skills. And I said this could be a perfect fit for you, if you can, in so-called get married, and form a partnership. But you need to work on that, that situation, I can’t help you. And I walked out of the offices and I said, here’s a cup of coffee, have a chat, call me when you’re done. And let’s see how it goes. And they bought the business.

Joanna:
That’s such a good story.

Roy:
Two years later, we back and they’ve now called me and said we’ve you know that the business is going exceptionally well, it’s time to retire, sell the business. And I’m in the process of selling that business right now. And as it so happens, I found a young gentleman who has the technical skills and a businessman who is looking for more overall investment. And we’ve had our third meeting together.

Joanna:
I mean, that is just a story of a lifetime, right? I can’t believe it, I can’t believe that you introduce these two people together. And then you know, it solved their issues individually as buyers, because you’re both looking to buy a business but needed each other to run it to solve the problem of the seller at the time. And then, you know, they lasted in business for 22 years. And now you’re doing it all again. It’s just fabulous.

Roy:
Yeah. It is one of the best stories.

Joanna:
And it must be touching for you to find, you know that buyer that you dealt with more than two decades ago, or still are in contact with you. And you know, you’re the person that they’d reach out to now, all of these years later. And what’s your secret to that? Because I think that, you know, that’s really telling Roy. That’s a massive positive. And I think something that anyone who’s coming into the market, as a business broker now would want to understand in terms of how you create that sort of longevity in relationships,

Roy:
I think it’s, you know, the old days, the marketing used to be letters, post office drops, the brochures, and you only sell the business sort of once or twice in your life, and said, Well, I’m not ready to do that. And typically, you put that into your bottom drawer somewhere. And five or six years later, we used to get a phone call and say, you won’t remember this, but also got your brochure from five years ago. And I think I’m ready to go but these days, of course, it’s not posters anymore. It’s a website, it’s Google Ads, etc. And if we do a good job and a good honest job, you know, Google reviews are honest reviews, because they’re not your reviews. It’s someone who’s making a subjective review, working well with solicitors and accountants and showing that you’re on top of your job during the standard by coming up with creative solutions. That’s a very important source of referrals. Because if someone wants to sell their business, generally what they’ll do the first port of call will be to talk to the accountant. This is what I’m thinking, what are the implications? What are the capital gains tax implications? What do you think, who should we use, and therefore the accountant, if you’ve got, you know, done a good job before, the accountant will feel very comfortable in recommending you. And once that happens, you know, everyone’s comfortable in going forward. So, it’s just been to be frank, just being totally honest and upfront. And we’ve often turned around and said to a buyer made an excuse not to sell a particular business to the buyer because we just knew he was going to fail. And, you know, we’d like to sleep well at night and the Commission wasn’t not going to change our lives and we’d really persuade the buyer that it’s not for you if we felt it was appropriate. And, you know, that’s just our philosophy. And it’s worked well, for us.

Joanna:
It’s clearly worked very well for you, boy, and what a fabulous philosophy. Absolutely. And clearly, you know, as we say, that’s what’s worked for you over the years, but you must have been in contact with these buyers and these owners who had bought 22 years ago and now coming to market, have you just maintained a relationship with them over all of these years? Or did they just not speak to you but just suddenly remembered about you 22 years later?

Roy:
A bit of both, we certainly try and keep up the relationships and the contact, knowing that they’re going to come back to market one day. But sometimes time gets away with you, things change. And I would say it’s probably more than 50% of the sellers who come back to us remember what we did for them as a buyer, and it was a fair deal and trusted us at the time and what came back to us as the first port of call. So which is always a good feeling.

Joanna:
Well, there’s the I guess, the lesson as well, it’s to treat both parties with respect. You know, and true concern about whether they’re purchasing whether the seller is selling to someone whether the buyer is purchasing something that they’re capable of maintaining and growing into the future.

Roy:
Absolutely. Another example sticks in my mind. Many years ago, someone who wants to sell his business does this smallest business buyer walked into my office one day and said, I’m looking for a business, it gave me some parameters and gave me a price guide. And I said to him, I’m working on the business at the moment but I’ll get back to you. I didn’t call him back into the office. The following week, I showed him this business, which I just listed, hadn’t even started marketing yet. And I say to him, Look, it’s a very solid business that meets all the parameters except the price. This is it’s a higher price, and you gave me but we know that that’s often the case buyers will sort of under quote you with that prepare to pay. And he looked at us with ease and I showed him the information memorandum. And he looked at me and said, This ticks all the boxes, said, I need to ask you a question. I’ve just cancelled the deal from another broker putting in an offer to pay the deposit, suspended due diligence, and what I found in the due diligence, compared to what I was told was talk and cheese and cost me a lot of money. And I’m very, very distrustful now, at the moment, you know, generally. And I’ll say to him, what, let me show you this. And I went back to my office and I brought in the file. And I said, here are the profits according to terms of the information memorandum, open my file, I pulled out the tax return. And I’d say there’s the property got on the tax return. It’s one and the same with one or two adjustments, there’s the lease summary. Here’s the actual lease. This is the wages summary. And it was all in the file. And once he saw the evidence that he could rely on the information on the IM, he sort of said, thank you very much. I’ll go and discuss it with my wife and his kid because he wants to bring in his kid with him. And six weeks later, we did the deal. And it and we didn’t even have to advertise that business. He bought it at the price that we asked for. It was a fair price. He knew he could rely on the figures. And it was a fantastic deal. The vendor stayed with him for six months, just because the vendor was such a wonderful person as well. And that is another nice story and it gives you a good feeling when that happens.

Joanna:
I just love stories like that.

Roy:
And he still holds the business today.

Joanna:
Oh, I love it. Afterwards, you have to tell me the business. But look, I just love these stories, right? I love love this area. I love seeing good deals get done. And I just love this philosophy that you clearly have, which is about making sure that you’re doing the right deals, because the right deals lead to such great future outcomes for both the seller at the time and obviously the buyer by evidence by the mere fact that they keep coming back to you so huge kudos to you, Roy and a massive thank you for coming on to the program. How do our listeners make contact with you if they would like to find out more about how you might be able to assist them in the sale of the business, or perhaps in the acquisition of a business?

Roy:
The easiest way is just to get onto our website at www.corebb.com.au or send us something. You’ll find all the communication numbers, emails address or sales at corebb.com.au, if you Just give us a call directly first, all the numbers are on the website. And we have a motto, we will always get back to someone within 24 hours, irrespective even if we say we cannot talk to you today, but we will be in contact tomorrow that you will hear from us on the same day.

Joanna:
What a great service promise. I love it. I love it. Roy, thank you so much for coming on to the deal room podcast,

Roy:
Pleasure, thank you for having me.

Joanna:
Well, that’s it for this episode of The Deal Room podcast with Roy levy from Core Business Brokers all about how creative solutions can help tremendously in the sale, and acquisition of a business. Now if you’d like more information about this topic, then check out our show notes which will take you straight through to this episode page at our website, www.thedealroompodcast.com where you’ll be able to download a transcript of this podcast episode if you’d like to read it in more detail. And of course, we also there link straight through to Roy Levy and Core Business Brokers if you would like their assistance for the sale of a business or perhaps in the acquisition of the business there in the show notes you’ll also find details of how to contact our Legal Eagles at Aspect Legal about anything related to this topic or head over to our website at www.aspectlegal.com.au to book a free 15-minute discussion with our legal team. Well that’s it I hope you enjoyed what you heard today. If you did, don’t forget to subscribe to The Deal Room podcast on Apple Podcasts, Spotify or your favourite podcast player to get notifications straight through to your phone whenever a new episode is out thanks again for listening in. This has been Joanna Oakey and The Deal Room podcast a podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time.

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The Deal Room
[EP 212] Selling a business in 2022 – Market Trends

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Today we are talking to Roy Levy from Core Business Brokers about what he is seeing in the business M&A landscape right now – a topic that is always very popular. Roy is a Corporate Advisor, specialising in business divestments, mergers and acquisitions in the SME and mid-tier markets across Australia and New Zealand. In this episode, Roy and our host Joanna Oakey discuss the state of the market in particular where the opportunities are. We also discuss a few best practice tips in selling and buying a business based on these recent market trends.

Note: This has been automatically transcribed so will be full of errors!

Joanna:
Hi, it’s Joanna Oakey here and welcome back to The Deal Room podcast, a podcast proudly brought to you by our commercial legal practice aspect legal now today we are talking to Roy Levy from Core Business Brokers about a topic that’s always very popular market trends. Roy is a corporate advisor specializing in business divestments, mergers and acquisitions in the SME and mid tier markets across Australia and New Zealand. And in this episode I discuss with Roy the state of the market at the moment. In particular, looking at where the opportunities are, we also discuss a few best practice tips in selling and buying a business based on these recent market trends. So here we go with our discussion with Roy

Joanna:
So Roy, welcome onto the deal room podcast. It’s so good to have you on the show.

Roy:
Thanks, Joanna. Lovely to be here. It’s been a long time with COVID lock downs.

Joanna:
Exactly. And I am super excited to have you here. Because I just You have so much knowledge from all of that long history that you have in the broking industry. So there’s just so many things that I really want to dive into together. And of course, today, we talking about market trends. And I think that’s so important, because everyone wants to know, Is today, the right time to sell their business is the right time today to buy a business, and where are the trends in the market? what’s hot and what’s not. So what are you seeing in the market right now, Roy?

Roy:
Well, since COVID, there’s there’s certainly been a change that we’ve seen, you know, last year, that was very difficult. Everyone had this great uncertainty, what to do when to do it, and basically everyone just to back and did nothing. Now what we’re seeing since since about February, we finding the small business where what we call by yourself a wage top business, you know, making profit anywhere from 100 to 300,000, has become very difficult. And I think there’s a couple of reasons for that. One is there’s been no immigration. So those immigrants who imigrate with a business visa needing to buy a business, there’s been none of that happening over the last two to three years. Second of all, those small businesses where there’s a dependence on labor, buyers are very worried that there’s a shortage of labor. I’ve had an incident in the maintenance business that we were trying to sell. And someone in the industry said, I’ll buy the business provided this contractor to staff that will come across, I need the staff, not so much the business. And of course, the owners were doing the work and they were leaving, so that didn’t work worked out too well. So in the hospitality side of things, it’s very uncertain because a lot of businesses have returned to pre COVID trends or, you know, turnover, but a lot have not because foot traffic, for example, in the city is slowed down very, very badly. So those cafes have not bounced back to pre COVID levels. There’s a lot of uncertaint in store, and a lot of fear. And I think the last answer to that question in the small side is that there is full employment as we know, so staff who are on a good job and earning good money, there’s no need to go and take the risk of buying their own business because they don’t need to right now. So so the small end is been quite tough, quite frankly, and remains tough. Where we finding big demand is in the in the next stage up, in other words, those businesses traditionally unsexy, solid, not too exciting engineering type businesses manufacturing making a huge comeback. With a with an EBIT and earnings number of let’s say 500,000 to a million dollars, we’re seeing a big spike in demand for those solid businesses. And there’s not that many quality businesses around. So prices are relatively high. And those vendors who have been around a long time and have now said it’s time to retire because I’ve lost two years of traveling at this stage of my life. They come into the Have you know they looking to sell? And we find the big demand in those type of businesses, which is good for us?

Joanna:
Yeah. Look, it’s fascinating hearing you talk because I am seeing exactly the same things, which, you know, I guess that makes sense. But we are mainly dealing with quite a few engineering businesses. Right now. We’re right in the middle of deals in in the 500 to a million EBIT, that you’re talking about. And, and, you know, and they seem good, solid businesses. And I think that the thing right at the moment in the market, is the appetite seems to be for the businesses that have that solid history, and that have predictability stability into the future, even more so than any time before that I’ve seen. That’s, you know, that’s what we’re seeing, certainly, hospitality, travel, all of those types of industries that have been hugely impacted by the pandemic, for obvious reasons. You know, I think you’re absolutely right, we’re not seeing much in the business sale market. And in fact, earlier on, I was seeing a bit of distress sale in that area. I’m not even seeing that at the moment, which is interesting. I’m just seeing very little movement at all, is that what you’re seeing as well in that area?

Roy:
Absolutely. The largely those businesses traded right through the COVID. Because, you know, they weren’t forced to close down other than possibly a few weeks. So their fingers didn’t deteriorate very, very much at all. In fact, some of them even don’t even better. That’s another challenge these days. One, what a buyers always asking the question, were you affected your COVID? Or were you affected positively or negatively? So we need to look at normalizing the figures of the business to say, what is going to be the sustainable profits into the future, rather than looking through the history and understanding what happened and why

Joanna:
I was just going to agree with you, because that’s absolutely the thing, when when we’re dealing with businesses that have had a lot of volatility in these past couple of years, I think the problem has been going to market, getting, getting comfort from a buyer as to what the future actually looks like, for that business is is really hard at the moment. And of course, so that’s why we’re seeing, you know, deal structuring moving a lot more to earn outs and contingent payments based on performance of the business post completion. That’s a strong element in the market right now. But but that makes sense. You know, they, and I think in many instances, that’s better for the sellers as well, because where a buyer is not comfortable, then at least they’d be able, they’re able to share in the downside and upside risk of future performance.

Roy:
Exactly right.

Joanna:
Yep. Okay, so what does this mean for our buyers and sellers, then so so, you know, and what is your when you’re going to talk to businesses who are looking to move to a sale? At the moment? Do you have different things that you’re talking that you’re saying, depending on the market that they’re in and the size of buyers that they potentially are looking for?

Roy:
Absolutely. So when we when we go and talk to potential sellers, the first thing we need to do is understand a little bit of the history of the business and understand the financials of the business and the trends as we’ve seen over the last couple of years, and especially during COVID, and then asked him the question, Are you are you comfortable in presenting these figures or an adjustment to a buyer as what they call maintainable future earnings, because that’s the figure we need to base a valuation of the business together with other factors, the slot of analysis of their business, and the industry, the asset base, working capital requirements for certain industries is very critical. So basically, that’s what and another important factor is no buyer likes to buy a business and then have static performance, even though if the poor performance has been good. They want to see or want to understand that they can grow the business. So so that’s the question, we asked to a vendor, if you were 15 years younger, how would you take this business to the next step? And that we need to introduce to a buyer and provided it’s feasible, that could excite them because they will have the energy to do that once they’re comfortable with the business. Yeah, yeah. Yeah.

Joanna:
And sellers are more disappointed now than they had been in the pre COVID days in terms of their the value that you think they’re able to get out of the business compared to the value that they thought that they’d be able to extract?

Roy:
There’s a bit of a mixed bag, sometimes a seller would have gone and got some opinions from his advisors, good friends in terms of value. And their opinion is often unrealistic in terms of what’s going on in the market right now, when we give them our opinion, which is an honest one, and we give them the reasons for that, then, you know, if their answer is, well, x or y told me that it should be a higher value. Typically, our answer will be when is the last time X or Y sold the business? We’re out there talking to buyers talking to sellers every day of the week, understanding what’s the trend in the market, what’s going on. And we give an honest opinion, once we understand the business and the nature of their business, in terms of what we believe the value will be a good solid business today is getting a good price. And as much as if not higher, in some instances, then pre COVID for certain types of solid, old fashioned businesses that that just chug along year in year out, shooting at the profits. So we encourage the buyers will give them an honest opinion. And, you know, if one market the business well and creates a some options for the seller, in terms of qualified buyers, that’s where you get real good value out of the business, because ultimately the market will determine what the value is. But the more qualified buyers you have chasing the one business that will ensure a really good price.

Joanna:
And obviously, we’ve been talking about, we’ve been referencing to the most recent history and impact of the pandemic, there’s been another large global consideration at the moment with the war in Ukraine, we’ve had a couple of deals that have had a bit of wobbles, you know, arising from uncertainty in global markets. And and I think, you know, it’s interesting to think about these macro issues and the impact on us here in Australia impact some industries doesn’t impact others. But I guess it’s just something to bear in mind, for sellers in terms of ascertaining the best time for the sale of their business, and the impact of both domestic and international issues that might be at play that might impact the pool of buyers, or the pool of buyers ready availability of funds at that particular point or appetite. At that particular point, while we have a bit of instability, but we have a number of industries, like for example, we work in many, with many professional services, businesses, recruiting accounting, many other professional services, businesses, and even the health space, medical, dental, veterinary funding those industries, generally speaking, are still moving on through as though we’re still sort of business as usual, which is nice to see. Any comment from you on sort of that the international impacts or impact of international issues?

Roy:
To be honest, we haven’t seen that at all, the only impact from outside or will sources is we are interest rates going to end they are going higher, they will go higher. So that will really affect the funding requirements and ability to repay any loans should a buyer need the loan to buy their business, and that what they would need to take into account and no doubt the financial institution lending the money or make want to do due diligence in two ways I the business being acquired to make sure it has the positive cash flow to be able to read to service that loan the capital and interest. And secondly, of course, the the buyer themselves would need to have financial capacity and security to be able to secure that loan. But that’s at this point in time. If we with eurocrane situation. That’s the only real impact we seen with our buyers and sellers at this point in time. Luckily, so yeah, you’re right. It’s business as usual. And in the bigger space, the mid tier space where businesses are being sold for, let’s say 4 million to 100 million. There’s a strong appetite for good businesses that particularly that can be bolted on to an existing business. And typically they will pay even higher higher prices provided this good management infrastructure in place. So we are not seeing that impact at all at this point in time.

Joanna:
Yeah. And just a one other thing that I wanted to pick up on that you talked about earlier. The importance or other stress that can be caused by a tight, very tight labor market at the moment, and then, you know, the the possibility that staff could be a really big value element at the moment in acquisitions. And you know that the data at the moment seems to be suggesting that we’re headed for a far tighter labor market moving into the future, you know, this is, this is set to be something that is not a passing trend. And from that perspective, then I guess the one, the one thing to leave our listeners with is, you know, if you’re thinking of preparing a business for market into the future, I think employee attraction and retention is has got to be a fundamental part of your strategy to underpin the maximization of the value at sale, because that’s what buyers are going to be wanting, more and more of into the future, as the value of part of the acquisition is that does that accord with your thinking Roy?

Roy:
Absalutely. And it’s always a critical issue that a buyer says, you know, if the vendor, especially in the smallest smaller size businesses, that the owner of the business, the vendor has really been making all the decisions and doing the strategic work, the buyer would need to come in and get trained in that in that area. And the vendor, you can contract as you as you appreciate, with a vendor legally, to make sure that that handover and assistant takes place. But it’s difficult to contract with an employee because ultimately, if an employee clashes with a new owner, they can leave, and there’s nothing they can do about it. So it is important for the vendors who want to sell their business to have the organizational structure in place, with good staff in place and to be transparent to the staff. Regarding the the size of the business, I would say to a buyer, why would the staff leave, because they would then have to go and find another job, which is uncertain, they would stay with you. And unless you teach them badly, there should be no risk. But it’s something very important that’s going to be pursued by a buyer.

Joanna:
Look, absolutely, we are seeing quite a few deals at the moment where we have earn outs also linked back to being can contingent on certain key staff continuing into the business, obviously, you know, quite often the key staff are the management staff are the owners who are who are the selling entities. But this is also quite often nowadays, bringing in other key management stuff of the business that don’t have equity, which is an interesting, you know, it’s interesting. And it’s it’s certainly cautionary, from a seller perspective, to make sure you’ve thought about how you’re going to really motivate those staff to stay on, stay on to build the business up for sale, but stay on post sale as well.

Roy:
Correct? Absolutely correct. If there are any key employees in their business who are capable, and wish to be part of the new team going forward with the shareholding. And as we say skin in the game, that would be very attractive to an incoming buyer. Of course, it opens up a whole different aspect of negotiations with a shareholders agreement, which is probably as important as the contract of sale for the business.

Joanna:
Well, that’s absolutely right. Because that’s often forgotten about or or put last. But the shareholders Grimm is super important in terms of preserving those rights for the future. But Roy, I’ve just got to say this is you know, this is where I just love your ingenious thinking, because I think you’ve got some examples that we’re going to talk about in a future episode of some, some nifty and creative deals that you’ve managed to stitch together to make sure deals happen. And, you know, I just I think when you’re talking there about employees, you know, perhaps from a buyer’s perspective, that might be a good idea to sort of position them as potential owners into the future. I think it just alludes to some of the creative options that you’re often thinking about for your buyers and sellers.

Roy:
Correct. Absolutely correct.

Joanna:
Which is clever, very clever. And I can’t wait. We’ve got an episode coming up with you, Roy, where we’re going to talk all about the creative deal structures that you’ve been putting in place.

Roy:
Excellent. Look forward to it.

Joanna:
Wonderful what you find listeners want to get in contact with you, Roy, how do they go about doing that?

Roy:
The easiest way is check our website is www.corebb.com.au or email us at [email protected] Or give us a call on the website is our number. You can give us a call at any time.

Joanna:
And we’ll link through to all of those have links and website and your phone number and all those sorts of things in our show notes. So if you’re running along the beach right now and you weren’t able to jot down Roy’s details, have no fear you’ll be able to access it from the show notes. Roy a just wanted to say a huge thank you for coming on to The Deal Room podcast.

Roy:
Thank you for having me. Been a pleasure. Thank you.

Joanna:
Well, that’s it for this episode of the deal room podcast where of course Roy and I discussed the most recent market trends. Now if you’d like more information about this topic, or to connect with Roy Levy at Core Business Brokers, then just head over to our website at www.thedealroompodcast.com where you’ll be able to download a transcript of this podcast episode if you’d like to read it in more detail. You’ll be able to connect straight through to Roy levy at Core Business Brokers or you will also be able to book in a call with our Legal Eagles at Aspect Legal if you would like to have a free discussion about how we may be able to assist from a legal perspective in buying or selling a business. Well that’s it i hope you enjoyed what you heard today. If you did don’t forget to subscribe to The Deal Room podcast on Apple podcasts, Spotify or your favorite podcast player to get notifications straight through to your phone whenever a new episode is out. Thanks again for listening in. You’ve been listening to Joanna Oakey and The Deal Room podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time.

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