1778 – Boosting Business Value in M&A with Christine McDanell

Josh (00:00:04) - Hey there, thoughtful listener. Would you like consistent and predictable sales activity with no spam and no ads? I'll teach you step by step how to do this, particularly if you're an agency owner, consultant, coach, or B2B service provider. What I teach has worked for me for more than 15 years and has helped me create more than $10 million in revenue. Just head to up my influence.com and watch my free class on how to create endless high ticket sales appointments. You can even chat with me live and I'll see and reply to your messages. Also, don't forget the thoughtful entrepreneur is always looking for guests. Go to up my influence. Com and click on podcast. We'd love to have you. With us right now it's Christine McDaniel. Christine, you are an M&A consultant and you are the principal and founder of the Magnolia Firm. Your website is the Magnolia Firm, Dot Co. Christine, thank you so much for joining us.

Christine (00:01:15) - Josh, thank you for having me. I love your energy.

Josh (00:01:18) - Well thank you.

Josh (00:01:18) - I like yours Christine. You're based in San Diego. Tell me a little bit more about the work you're doing and who you're working with and the impact you have in the world.

Christine (00:01:26) - Yes. So I have been a entrepreneur. I started my first company 20 years ago on December 7th. It will be 20 years. I cannot believe that. Lots and lots. I had ten startups. I had another 10 to 15, you know, acquisitions, roll ups, business flips. And so I've been an entrepreneur all my life. I love every minute of it. And I did most of my own transactions. And so a couple of years ago I was like, well, why don't I start my own M&A business brokerage advisory firm? And so I help people with the biggest sell their life typically, which is exiting their company.

Josh (00:02:02) - Yeah. So how is that world lately? The world of mergers and acquisitions?

Christine (00:02:08) - Yeah. And we even sell. So we do. You know, now that we're up market, a lot of them are acquisitions, but we also do private buyer sales.

Christine (00:02:15) - So it might be somebody that is in corporate, you know had freedom during Covid how to go back to corporate. They hate it. And so their first time business buyers they'll go get SBA loan. You know they qualify for one or they'll pull from their 401 K or their house has equity in it they can pull from. Um, so yeah, it's a hot, hot seller's market, Josh, I'll tell you that much. And I'm not just saying that, but the key, the one magical word is for profitable companies. For not profitable companies is a horrible market right now, but for profitable, even with the interest rates so high on the SBA terms, the business is servicing the debt. So, you know, maybe you can buy less of a business, but you're still getting this amazing cash flow that actually replaces your corporate salary.

Josh (00:02:59) - Yeah. Um, can you share just a bit, you know, because that was going to be my next question is talking about what the current market is like for lending.

Josh (00:03:06) - And through the you know, the SBA, by the way, is such a great program, such a great I am so grateful for the SBA. Um, years ago, we used some funding to get us to where we are today. And you talk about ROI on that. Debt is like the biggest no brainer, which I'm going to maybe have you talk about, maybe a hypothetical or how this works. So let's let's kind of address the opportunity of buying a company today, and then we'll kind of get into some seller strategies.

Christine (00:03:36) - Yeah, I love that you said that about the SBA because there were they did do a great job stepping in during Covid with that Eidl loans, those Covid relief loans and what we've been able to do some ninja things because my seller is like, you know, they have a $500,000 loan on like a 3% interest rate for 30 years. They don't want to give it up. That's like free money. So sometimes not every case. So sometimes we're able to let the seller keep that loan.

Christine (00:04:04) - And then the buyer, you know, buys the business. Other times we've had the buyer use that towards the purchase of the business. So it's pretty cool what we can do with that. Um, so let's give a hypothetical on a business purchase. So let's say you find a business listed for $1 million. It's cash flowing, Ebit is 250,000. You know, you're in corporate land that you hate and you're making your salary is 200 K a year. So you're going to replace that salary. The SBA right now is asking for 10 to 20% down. We've been seeing 10% down recently I think because that's compensating for the rates going up, because yeah, the rates are about 10 to 11% on an SBA loan. That's a ten year loan. They're going to want 10% down, which is 100 grand. So okay, you just put 100,000 down to get a million. Right. And to get this 250,000 a year in profit. So that's a no brainer. SBA loans do take a little longer. But they've been quick.

Christine (00:04:59) - So I personally had one. In 2017 I sold a company in 2017. They told me it would take 45 days. It took 93 days to close. Imagine how stressful that was. Every week the SBA was like, oh, we need another week. We need another week, you know, to push the past three months. So but for us, I've just had two SBA's back to back closing within seven weeks, which is really fast. Um, SBA made some changes back in May, which sped up, you know, the whole process. Luckily, it's it's kind of taken the government, which slows things down. Oh, sure. A little bit more out of the process. And the banks are handling more of the process.

Josh (00:05:36) - Yeah. It always is going to take a little bit more time than you think it is. I mean that was absolutely our experience. But listen, if you could be patient, it's the gold standard rather than some of the other lending options that are out there that could be, you know, not as awesome.

Josh (00:05:51) - And so and with the SBA again, generally you're you're going to be personally involved in some way. Like there's. Right. The principles are usually going to either contribute cash or they're going to use their personal credit. Right along with that.

Christine (00:06:05) - Yes. So a couple of things you do have to do a personal guarantee. So that's important. Second thing is you need 2 or 3 years in that industry right. So you can't have any you know you've never worked in technology. You know nothing about marketing and go buy digital marketing agency. They're not going to hear that. You're going to have at least a couple of years of experience in the field. And then I'll also say this too, which is great. I mean, they have only a 2% failure rate, right? And that's why they're so strict about, you know, lending the money in the first place is that only 2% of the people fail on paying back that ten year loan, which is amazing, of like a 98% success rate, you know, which is inspiring because everybody knows startups, um, have the opposite.

Josh (00:06:47) - Yeah.

Christine (00:06:48) - So yeah. Success rate.

Josh (00:06:50) - Yeah.

Josh (00:06:50) - I mean, they're really like, let someone else, uh, get through the attrition, you know, and prove it out. Okay. So I want to switch to kind of talking about because I think a lot of folks that are listening to this. Probably in that, you know, they're the founder of a company and they're saying, all right, Christine, I probably am interested in exiting at some time in the future. What should I be doing today so that I can get great valuation and I can get a really great multiple.

Christine (00:07:16) - Great question. So a lot of things. But I'll do like the top three. So obviously your net profit is like the number that multiple that you just mentioned. It's usually based on your cash flow EBITDA. You know, the net profit at the end of the day with all your add backs, so that, you know, in the beginning you're pumping back all the money, goes back into growing the business, obviously.

Christine (00:07:36) - So so that in the beginning you might not have any profit. We get it for a year or three years. But then when you're getting ready to want to sell in the next year, then you need to just be like slicing expenses and just making like a well oiled machine. So I'd say profit first, reputation second. Make sure you have a bad reputation is very hard to fix. So reputation is huge. That adds a little bit of extra value on that multiple team. Don't have a lot of like turnover on the team. Don't have high customer concentration. So no buyer ever wants to see, you know, 80% of your revenue represented by one person, one client, one client, if that's always. Yeah, it's like a consultant.

Josh (00:08:19) - Yeah. I mean, it's it might be fun at the very beginning when you land that big deal, but you don't want to be there for very long because then you live and die by that one client.

Josh (00:08:28) - No, that would be or even.

Josh (00:08:30) - An, you know, even a very specific niche or something like that that could take, I would imagine, you know, again, just any, you know, client diversity is going to be pretty valuable.

Josh (00:08:38) - And then in terms of like where that revenue comes from too, I would imagine that, you know, if you can show a lot of recurring revenue, that's just kind of like it's just locked in, it's baked in. It's, you know, that guaranteed revenues coming in month after month after month after month, that's got to be attractive right now.

Christine (00:08:58) - And that's the other one I was going to mention. Yeah, it's just these are words, right? Like remote base, relocatable recurring revenue. Like these are some of my favorite words. Right. So remote base is huge. So if you can have remote if you have contractors versus employees, it doesn't matter anymore. It's kind of funny you would think that a buyer would want like employees. But nowadays there's so many people using contractors instead that that's totally cool. No problem. Back to the recurring revenue. My Wellness spy started 2012. This was before Massage Envy or any sort of monthly spa membership. There was no such thing and my mentor was like, you've got to get recurring revenue.

Christine (00:09:36) - And I'm like, no, but it's a spa and people come in for massage. Just, you know, when it not regularly. And from day one we put it in, thank God these spa memberships monthly and annually. So when I sold, I had 32% of my revenue and it was a lot of revenue was recurring. So trust me, my multiple was above average when I sold that thing.

Josh (00:09:56) - Yeah. All right. So let's talk about multiples. Maybe some best case scenario like some of the highest multiples. And maybe what were some of the unique things involved in that versus these are pretty standard. Pretty common.

Christine (00:10:09) - Yeah. I mean, we have right now we have. So I is really sexy. Everybody knows that. But I is so new. So those companies aren't really exiting yet. Right. They're just hitting their stride which is fun to watch. And again we only deal with digital based businesses. So I haven't even really thought to go after them. However, we got one just three months ago.

Christine (00:10:27) - So from start to finish from when he was listed, he's 27 years old. I'm so excited for him. And then from the day he closes his three and a half months, which is so fast, it was priced very high. Um, but it was eye related. So dealt with the CRM integrator agencies. So essentially say, you know, somebody putting Salesforce into a huge company, right. Like a massive organization, fortune 550 company even, um, they need that AI. There's an AI component right now to Salesforce called Einstein. And that's what this agency, his agency does, that it will come in and actually install this part of Salesforce. That's the AI generating process with Einstein. And he's killing it. And so yeah, that's super hot right now I.

Josh (00:11:11) - Yeah for sure. Um, take me through where you come in. Christine. So when you're working with someone that how far generally are you you're representing the sellers, right.

Josh (00:11:21) - Exactly.

Josh (00:11:22) - Okay. So when do you usually come in and what does that total engagement typically look like.

Christine (00:11:28) - Yes. Great question A to Z. So from the day they um most of our sellers are young again we're dealing with tech right. Youngest 21 oldest at 47. Most of them are in early 30s which is very young for people to be exiting their first company, which is exciting. And so they come in, hey, I want to sell. But for them they're like, I wanted to sell yesterday. You know, these aren't planners. These are entrepreneurs. They're ready. Next venture. Yeah. They're not exit strategy. But and then again, as entrepreneurs were never there was never an enter strategy. It was just like we jumped off the deep end and started the company. There's no enter strategy. I don't even run an exit strategy either with my business is usually if I do, it's a very short one, like six months. So yeah, they get to me, we list them, we go to market, we package them up, market them, sell, you know, go to market.

Christine (00:12:16) - Loi offers come in purchase agreement money wired in the bank. That's very high level. There's a bazillion steps in between that. But I'm literally the person doing A to Z which is so much fun.

Josh (00:12:28) - Yeah. So I think a seller, one thing that they're probably going to be pretty keen on is where do I find the buyers?

Christine (00:12:36) - Yeah. So so again we're listing that and we're actually publishing get acquired is our book that comes out next month December. Super. Congrats. I'm this airs our book will be out. Yeah. Send you anybody a free copy if you wanna reach out to me on LinkedIn. Uh, I'm very easily reached there. Um, and it will literally be the book, physical book that eight is. You could sell your own company. You could take this book. We didn't hold back. A lot of people have written these types of books, but they, you know, keep the secrets out or they're like, hire us, and we could do it for you.

Josh (00:13:07) - Yeah.

Josh (00:13:07) - Right.

Christine (00:13:07) - Right. We got enough work. We're not worried about that. We're boutique firm. And so we wanted to publish this book to help people we couldn't help. And so, yeah, I mean, they would, you know, you could publish your business for sale on all different sorts of platforms. Make sure you don't put the business name, keep it very confidential, get them to sign an NDA. Here's some tricks. Let's say you have a key person in your company. They're like your right hand. They loved the business more than you do. And I've had those managers. So I will always go to them first because I'd hate to sell it. And for them to come back and say, Christine, why don't you ask me to buy it? I would have bought it. But you have. But you don't want to scare your employee. Yeah, and that too. I've made all the mistakes in the 20 years. And so what I would do is I, after I learned my lesson, is I would say, you know, hey, Michelle, I might bring on an investor or partner.

Christine (00:13:58) - I'm starting to think about it. Would that and this is during the business right before I'm about to sell. And would that be something you're interested in. Because based on her answer, it should go get capital. Can she go get money? You know, and she'd be like, wow, I would really like that. Let me go and see if I can find money. Then you can change the conversation of like, oh wow, maybe. Would you be interested in buying the company? So you have to do it very gently. Same with the competitors. Here's the other trick. Hey, if I ever thought about exiting in the future, would you be interested just because I can call you first again? You're saying the future. You're not saying you're about to list. Okay, um, because they could steal your clients. They could steal your employees. And I've had that happen to you. So, yeah, those are some little tips and tricks for people that that might want to sell their business on their own, which is totally fine.

Christine (00:14:44) - You don't have to use an adviser or broker.

Josh (00:14:47) - You know. And they're one thing I do know, right? Is there it's it's so valuable to use a broker, um, if nothing else, for the due diligence, because the due diligence oftentimes can reveal some landmines, that if you're not an experienced seller or you don't have a good team in place to help you with that process, you know, things can blow up. You can not get anywhere near where maybe you should have been able to get because, you know, you didn't discover something. What is that side of it usually like for you and your team?

Christine (00:15:17) - Yes, as a firm, we do something unique where our data room again, we're going to have to have a conversation. So they're going to, you know, see a deck with no name on it. Right. It's them. It's a pretty deck about the company. No name. Then they sign an NDA or no. Then we have a call just to make sure they have access to capital.

Christine (00:15:35) - They're qualified, you know, they're a good person and there'd be a good buyer. And then that quick conversation gives them access in NDA, digital NDA to the data room. What we do differently is our data rooms are very extensive. We put a lot of stuff in there on purpose. So then they write a very comfortable lie where they're like, wow, I saw a lot of stuff. I'm writing the Loi and then the due diligence goes a lot smoother because they got a lot of it upfront. Um, the lawyers, you know, of course we're hands on the whole time, but if the due diligence gets a little tricky or, you know, and the review, the purchase agreement, they, they need my seller needs representation just for that part, the review of the purchase agreement, um, maybe a little due diligence, but typically we're doing all that.

Josh (00:16:20) - Yeah. All right. Christine, your website, the Magnolia Firm SEO. Let's talk about where someone goes from here. They've been listening to our conversation and like, I like Christine.

Josh (00:16:32) - I definitely want to have a conversation start, you know, might be a little early, might be imminent. But where do they go from here?

Christine (00:16:39) - Yeah. I mean, for me personally, again, if you want to reach out to me and connect, I love connecting people on LinkedIn. So for sure do that. Christine McDaniel I'm easy to find on there. And then, yeah, the Magnolia Firm, you can go to our website. We've got all our current listings there. So people are listening that want to acquire business. Right. We didn't really talk that side. Not much. But you know, our listings, their their previous sales success stories, testimonials. Um, we're great about keeping our website very, very updated. Um, so yeah, that would be great on all the social media platforms. So Instagram, Facebook, all those funds ones. And I play a fun character called broker Bob where I make fun of all the brokers. One day I'll get in trouble. Not yet.

Christine (00:17:18) - Um, you know, because it is, you know, I hate even calling myself, but technically, I'm a business broker, right? But I just say M&A advisor or business intermediary. I don't want to be in the category. But yeah, if you guys want a good laugh, you can check out broker Bob and other stuff on our social media.

Josh (00:17:32) - Christine, you mentioned your book. Um, now that I believe it should be published by the. On this episode. Errors share just a bit about the book.

Christine (00:17:39) - Yes. So on our website we have the link to get acquired. So yeah, we can send a free PDF. It's also going to be published on Amazon so you can purchase it there. Yeah. So get acquired is what it's called.

Josh (00:17:51) - Awesome. Well Christine McDaniel again, you're an M&A advisor and the founder of the Magnolia Firm. Your website is the Magnolia Firm Co Christine, it's been a joy having this conversation with you. Thanks so.

Josh (00:18:06) - Much. Yeah.

Christine (00:18:07) - Thank you Josh.

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