[Music] hey gang today we are going to talk about how to turn $100,000 into 50 million through business Acquisitions okay um listen this is an advanced acquisition strategy uh it's more closer to Capital allocation and deal making than it is really entrepreneurship and sort of you know building that that company for you to to own or that portfolio for you to own it's a little bit different um and I I've always hesitated to talk about this um on the internet because you know I think that there's a certain amount of of per there's a certain type of person that is ready to actually execute on this and I think that it really requires that you have the sort of right background and resume to sort of pull this together right however um for those that you know are uh in a position to do it they likely don't know about uh this this strategy and for those that you know maybe maybe aren't quite to this level um I want you to at least understand what's possible okay in terms of you know moving towards business Acquisitions rather than you know starting from scratch or maybe you did start from scratch and you have an entity and you just want to use you know m&a to to grow through acquisition and build to that $50 million valuation my name is Walker diable I am the Wall Street Journal bestselling author of buy then build creator of acquisition lab the elite acquisition accelerator so um here's the thing okay um the first thing we need to understand is how the capital stack works so pretend that this is a business that we're going to go buy okay and the thing is is this this this business when we buy it okay it's going to be you know whatever um x million and so the thing is is when we when we don't write a check for x million out of our bank account right um you buy it in the same way that you buy you know real estate so just think about it and for example just to take it all the way down to the fundamentals imagine this was your your primary residence your home you're going to go buy this home okay or this condo or whatever so you are going to you are going to you know put in you know whatever it is 20% um cash infusion all right this is called Equity right equity in your house and then up here you've got some kind of you know senior secured debt or or loan and that's you know going to be like 80% of your house okay and then you know this mortgage is like a 30-year mortgage and you know you pay it every month over time right um the difference uh the big difference is that this is your primary residence and you need to go get a job somewhere else to come in and pay that mortgage off uh one of the benefits of buying uh small businesses is that you can use um bank loans to buy something with cash flow that will actually be generating the money to pay off the loan and pay you and Provide Capital to reinvest into the company if you do it right okay so you know so I mean this is this is the overall concept of a capital stack senior secured loan um Equity okay some of you might go out and get a a second mortgage or something like that and so maybe your first first loan was 60% um this is a a 20% you know second mortgage or HELOC or something like that okay so here's the thing when you um buy an existing business what I talk a lot about in buy then build is just this concept of going out and buying small businesses using uh SBA Loans because that for all kinds of reasons I won't go into in this video but the point is is you know that might be a n that might be as high as 90% And 10% Equity okay so if you're buying say a million dollar business you might be putting in you know $100,000 uh between 100 and 200,000 depending on all kinds of things um and so you know you're able to get a lot of cash in order to buy these cash flowing assets right so you know buying you know small businesses and buying a primary residence kind of works the same way in terms of the of the fact you have this sort of capital stack okay so what we're going to do is I'm we're GNA we're going to go ahead and Target okay companies with um so for this acquisition strategy we're going to Target companies uh with let's just say between one and three million okay in earnings okay and we're going to start on the low end we're looking for that million doll in earnings business um and I've got all kinds of videos on the different ways to tell earnings but let's just let's just roll roll with me now we are going to be buying these companies for a multiple of the amount of cash flow it produces okay and so let's just say that we're going to go to um um our first business and we're going to say hey I'm going to offer you a four a four times you know which might be kind of a floor and they might say like well you know it's really going to be a four and a half times because of you know whatever networking Capital inventory what whatever it is um and we work it out and we get this deal for $45 million you might have to put down $450,000 okay down here and get the balance uh whatever that is for 4 uh 05 uh million from from a SBA loan which you can do okay so that might be one way to do it now you can raise for a lot of this Equity okay but actually let's talk about that for a second you can raise for a lot of this Equity the single best way the single best way if you're doing one is to go get investors okay however often the seller is the person who has sort of a Target on them and the SBA has even encouraged this uh recently and so you might be able to get a seller note okay for a certain percentage let's just say you know or let's just say an additional you know um uh 10% okay uh sorry it's a little funky but you know okay so so we've got an additional 10% of equity sorry in a sell's note but the bank considers that Equity because the seller is in second position remember when we had that second mortgage that's in second position the capital stack is when things go south who gets paid right so if this whole thing goes south and you bought it for $4 and5 million and you're able to sell it for you know let's just say you know um 2 million bucks okay the 2 million bucks does not get distributed equally across all these parties the senior secured note loan is the is the one that gets paid in this case in full because the balance exceeds this and they are not happy with you as the operator for messing this up okay but the point is is that you can actually use these seller notes as a source for what the bank will consider equity which will then reduce the amount that you need to put in okay footnote if you go to market with this plan of like I can't actually get the deal done unless I can get a seller to agree to this you are you are getting ready to walk an uphill battle okay because if you find a business that is that is is you know especially if it's your first time trust me I've worked with a lot of first-time buyers they're very picky they're they're very concerned about risk um they want everything to be sort of like perfect and in order and when all when you find businesses even approaching that they're in high demand at Market okay and a lot of times this you know seller financing just gets bid out right and even though someone's using a bunch of debt to buy the business it appears to the seller like it's just cash at closing and that's what they want right they they're not going to have any more control on this business and so they're going to uh go to somebody who um you know is able to just write them a check cash at close and they can move on with their life okay so how do you solve for this how do you solve for this and here's sort of the creative financing way that you can do it so number one go to sellers that are not at Market okay I'm a big proponent of Brokers because those sellers are ready to go okay and this is this is a very timec consuming approach but hear me out you're going to go to sellers that are not at market and you're going to be looking for that 1 to 3 million deals again I want you to start it near the bottom and what I want you to do is say listen seller um I want you to own 20% okay equity in this new entity that I'm starting okay we'll call this you know new Co in this newo okay I want you to own 20% of this new entity okay and then what we're going to do is we're going to do an asset sale so so your existing company we're going to move it into newco and you are going to own 20% of this new company okay then the second thing is um I'm going to write you a check for 40% okay of um this wait sorry 60% I shouldn't do math on camera 60% of the entire Enterprise Value so again let's assume it's like 4 and A5 million bucks I can't do that in my head but you know it's like uh two it's like $3 million or something so I'm going to write you a check for $3 million you are going to own 20% of this new company and by the way I want you to just keep doing what you're doing whatever whatever the fair market value salary is that's what we're going to pay you okay then what I want to do is is I'm going to pay you 20% okay as a seller's note okay deferred over time and maybe it's one of these where five or sorry we split this in two okay and half of it 10% is a uh straight up sellers note 10year amortization fiveyear balloon you know uh first year two interest only if we can get it Banks love that and um and will make the whole strategy more successful in a minute and uh the other 10% is maybe an earnout where based on performance over the next couple of years as long as the business stays relative to where it is um forming then you get that automatically like like it's not a hard earnout it's just protection from downside okay so what did we just do here what we just did was we created if we can get the seller to agree to this from the bank's perspective we just created 40% equity in the deal Okay now what's the truth the truth is it's really only 20% equity and it's the sellers and how much of this money is yours it's actually approaching zero because this 60% is easily a loan that's achieved because you've got 40% equity in the deal okay well Walker why on Earth would a seller agree to this especially if they're not even at Market that's what's interesting this is what I want you to say to them and by the way one more really important Point here is that this 60% that is you know on on a loan from the bank and this 20% that is a seller note okay this means that 80% okay of the entire Enterprise value of this whole company is owned by you the buyer okay and that's going to be newco all right now here's what we're going to do when you stack earnings on top of each other okay so if you have $1 to3 million business plus a13 million business I'm talking earnings now plus1 to3 million business time 10 time 10 okay let's say it's $2 million on average and now we we go out and we buy 10 of them just like this okay what happens is that you get what's called multiple expansions so instead of you know buying this company at you know maybe a four to four between four and five times um we're actually going to be able to take to Market hey I've got like $20 million in evida well a $20 million company okay that might depending on what's going on in all of the other components I mean that that could sell for a seven seven and a half times okay um just to keep the numbers grounded okay there's all kinds of ways you can get it higher or lower okay but you know you're buying it a 4.5 and you're increasing the value of the company to 7.5 that's like off camera sorry guys um but you know so I'm increasing the value just by combining all these together now it's important to understand and you can't just have 10 companies like separately okay you need to meld the culture you need to meld the systems you need to have a you know put together a formal board right so the point is is you go to 10 different people and say listen we're going to do this with you and we're also going to do it with nine other people all right the first one's going to be the hardest and newco we to combined are going to engineer okay this $20 million earnings business with the goal of going out and selling it for double your Enterprise Value today Mr seller what are the odds that you're going to be able to double the value of your business okay in this short amount of time without this kind of strategy right and they'll know like Hey listen you know I've been doing you know whatever HVAC for 30 years and you know this is just sort of the size of the company right so you start to centralize all the marketing okay you centralize all the accounting you centralize maybe not operations at the local level but you know like a lot of you know um governance and administration all the rest of it HR and all the rest at you know sort of HQ okay at newco and so newco becomes 80% owner of this entity and then it becomes 80% owner of the next nine okay so you've got 10 companies 20 million um now each one of those firms is going to send a management fee back to home base okay keep it low and reasonable um and that fee goes to cover all the overhead okay so it's more like a private Equity sort of you know rollup kind of structure and so you're able to use this um attractiveness by saying listen seller that 20% that you're keeping first of all I want you to get all of this seller node I really do okay I'm not trying to make it hard for you to get it but this 20% okay my goal for you is to make that 20% as valuable as this 80% that we're giving to you today okay and the point is we're going to put this on like a 3 to 5e plan you're going to be able to retire or whatever um and all the rest of it okay and of course there's other things that we can lay into here like you know if the seller wants out you know maybe you maybe you sell off 10% to the management team and you know this kind of method where you start to bring in the new management of each entity um simply by getting them to you know write checks into the company rather than just giving them free vested stuff but maybe you give them a discount or whatever that's up to your management style I like to be fair and Equitable um you might choose to take advantage of them and charge them full Enterprise Value whatever um so that's how okay why why Walker why 100,000 I didn't put any money into this well look if you have like zero skin in the game like no one wants to play with you ever okay you're like the kid at on the school playground that eats everyone's candy okay so the bank definitely wants to see that you have money in you're going to have to pay to find the company you're going to have to pay for the lunch with the owner you're going to have to pay for the due diligence you're going to have to pay for the quality of earnings because you need to start building a tight ship around all these things going on once you buy the first one okay you simply negotiate that next 100,000 for the next business and so on and so forth and then you roll this all up and newco uh sells to private equity for you know 789 maybe more times uh your $20 million in awesome earnings listen if you're considering buying a business in the next you know whatever 1 to 24 months consider acquisition lab we have uh created um a a vetted community of buyers and when and I mean it when I say that in other words 70 75% of applicants are actually not extended an invitation to enroll we don't do this because we're elitist we do this because buying businesses is is is hard it's challenging and you might not not be ready and we have other free resources for that I've got 100 100 videos on YouTube we've got an awesome newsletter uh check out by then bill.com get on that newsletter and um uh we've got other you know courses and free things my book is you know 17 bucks hard copy or something so anyway the point is is plenty of stuff for that vetted Community worldclass Education tools resources you know modeling all the rest of it and of course we've got 14 advisers on staff private slack Channel and all the rest of it uh we closed about $200 million our members did um you know just to be clear I don't I don't get a percentage of that I get no referral fees whatever uh and so it's lifetime access with 14 buy side advisors to help you succeed in buying a company thanks so much and we'll see you on the inside