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July 15, 2020

6 Mergers And Acquisitions Myths Your Future Buyer Wants You To Believe (#13)

6 Mergers And Acquisitions Myths Your Future Buyer Wants You To Believe (#13)

6 Mergers And Acquisitions Myths Your Future Buyer Wants You To Believe

"Show us your exit team and show you your future." - Jeffrey Feldberg and Steve Wells

Jeffrey Feldberg and Steve Wells are the founders of Deep Wealth. The mission of Deep Wealth is to prevent business owners from getting ripped off on their exit. Experiencing their own 9-figure exit, Feldberg and Wells know a thing or two about exits. Business owners are dreamers, the make-it-happen people, and the change-makers. It's us, the entrepreneurs who put everything on the line and win against all the odds. So, why is it that as business owners, we’re at the losing end when selling our companies? To help business owners, Feldberg and Wells crafted the Deep Wealth Experience. Through the Deep Wealth Experience, business owners learn how to increase company value.


  • Why unsolicited offers are not what you think they are
  • How unsolicited offers can cost you the deal of a lifetime
  • Why must have an exit team if you want to have a successful exit
  • The power of a Chief Exit Advisor to help you crust your exit
  • Why you're deal hasn't closed until you have the money in the bank
  • What to look for in buyers
  • The importance of knowing how your buyer will finance your deal
  • Expecting the unexpected
  • Why a lower offer may be the better offer
  • The mistake Feldberg and Wells made on their exit and what you can do to avoid this costly mistake
  • The power of creating an auction when selling your business
  • Why you can't time the market 
  • The one thing you can do that is more powerful than timing the market
  • Feldberg's and Wells' experience with buyers and what to look for in your future buyer
  • The big lie about an earnout and what you must do to protect yourself
  • The story-behind-the-story of the creation of Deep Wealth and the Deep Wealth Experience

This podcast is brought to you by Deep Wealth. Are you thinking about selling your business? You have one chance to get it right and you better make it count. Learn how the Deep Wealth experience helps maximize company value before you sell. Master the same exit strategies we used to increase our company value 10X with our 9-figure exit.

Enjoy the interview!


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This podcast is brought to you by Deep Wealth. 

Your liquidity event is the most important financial transaction of your life. You have one chance to get it right, and you better make it count. 

But unfortunately, up to 90% of liquidity events fail. Think about all that time, money and effort wasted. Of the "successful" liquidity events, most business owners leave 50% to over 100% of their deal value in the buyer's pocket and don't even know it.

Our founders said "no" to a 7-figure offer and "yes" to a 9-figure offer less than two years later. 

Don't become a statistic and make the fatal mistake of believing that the skills that built your business are the same ones for your liquidity event. 

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Enjoy the interview!


Steve Wells: [00:00:00] This is Steve Wells.

Jeffrey Feldberg: [00:00:01] And I'm Jeffrey Feldberg. Welcome to the sell my business podcast.

Steve Wells: [00:00:06] This podcast is brought to you by Deep Wealth. Are you a business owner who is wondering how to either grow your business, sell it or both, or maybe in today's environment you're wondering how to make your business pandemic proof. Visit to find out how you can master the strategies to grow and extract the deep wealth from your business.


Jeffrey Feldberg: [00:00:29] Welcome to lucky episode 13 of The Sell My Business Podcast. Steve, we have 12 podcast episodes that we've done. We're starting number 13. And why don't you tell our listeners what we're going to do a little differently on this podcast episode.

Steve Wells: [00:00:47] Well, we've talked to, business owners and sellers and buyers in the past, but today we want to, reflect and talk about the M&A myths that are circulating. We hear them in, in some of the interviews that we conduct with business owners and, and people, and we thought it'd be helpful for you to have us address these myths one by one.

Jeffrey Feldberg: [00:01:09] And, you know, when it comes to selling your business, Ignorance is not a bliss. Let's face it. You have one chance to get it right when you sell your business and you're going to want to make it count. So, what you don't know can and will hurt you at least when it comes to selling your business. So, Steve, why don't we start off with the mergers and acquisitions myth number one, what would that be?

Steve Wells: [00:01:31] Well myth number one would be the idea that unsolicited offers are the best offers because you save time and money. You know we hear in a lot of the people that we've spoken to and we've experienced, unfortunately, business owners who say, listen, I got this offer. It just came in the door. you know, I think it's good.

I think I'm going to take that and just run with it. And, I think it'll be fine. It's going to save me a lot of time. I don't have to go through all this process and there's probably just as much money as I would get a, if I spent a lot of time and effort trying to sell it. So, my business so well, we know that's not really right.

Don't we?

Jeffrey Feldberg: [00:02:10] Well, we sure know that in person and for those of you that know our story, and for those that don't is worth repeating.  We had started our e-learning company and we had no business being in business. We had no money, had no experience. Didn't have a team, literally failed forward day over day.

And then slowly thank goodness for our passion and our grit that kept us in the game long enough, we began to experience success and with success came attention to the company. And as a result of the attention to the company, we had this one incredibly experienced, smart and sophisticated buyer who gave us an unsolicited offer to buy the company.

Steve, do you remember what the unsolicited offer was? The deal terms of the offer?

Steve Wells: [00:03:01] Well, you know, they were giving us what they were positioning as a great deal. I mean, they were going to look at, our EBITDA and, give us three times, or, you know, they were holding this carrot out. and you know, we hadn't prepared ourselves for that conversation and we quite frankly, where we're a little bit tempted, we attempted to jump into it or at least I was, but we knew that it didn't feel right. I mean, a three-time EBITDA offer, it's a lot of money, but, you know, we, we, we decided not to, not to follow through with that.

Jeffrey Feldberg: [00:03:37] And, you know, before we talk about what happened next on our part, let's, let's just dial this back because I know a lot of business owners say, what's wrong with an unsolicited offer? You know, to what you said earlier, Steve, the buyer has come to me. I don't have to pay any. Commission to a business broker or to an investment banker I'm saving all this time, all this money.

And in our case that first offer, it was three times EBITDA and it was a seven-figure offer. And so as a business owner, when you see all those dollars on the table, it's very easy to say, sign me up. Where do I start? But Steve what happened next?

Steve Wells: [00:04:15] Well, again, as you said, this was a very sophisticated buyer and they knew more than we did. Of course. Well, we stopped and we said, you know, we've got to slow down, we've got to better understand what is our business? How can we prepare? How can we position our company?

So, we rejected their offer. I think they weren't very happy with that. They thought they might've had us. And, we said, you know, we've got to learn. So, we've, we've got a backup. And we spent then the next little while, honing our skills, learning what it is we needed to learn and really put ourselves back in school on how do you sell, how do you get your business ready to sell?

Jeffrey Feldberg: [00:04:59] Why do buyers love unsolicited offers? Well, they love it because they catch you off guard. And what they also love is they're the only game in town. I know in our case, the buyer repeatedly said to us, hey guys, listen, if you want to get the highest valuation from me, it's really important to me that there are no other buyers in the process.

And again, not knowing what we didn't know when we asked why he said, well, if there's other buyers in the process, it's going to take more time. I need to get more of my legal team involved. I have to get more of my accountants involved. It's going to cost me money.

And it's going to come out of your pocket and looking back, the reality is that was a lie, that that's not the case. So, buyers love unsolicited offers because when they're the only game in town, there's no option, which is what we recommend. There's no bidding war over your company and they get to call the shots.

And so, to what Steve was saying, it was almost two years when we said yes, To another offer from a different buyer, but this time it was a nine figure offer based on 13 times EBITDA. And so, Steve, if we're doing the math correctly, what was the increase in our company value from offer number one to offer number two.

Steve Wells: [00:06:19] Well, it's 10-fold. from 3 to 13, that's a huge difference. And while it was a little bit down the time path, really the, the numbers had not changed significantly. And, it wasn't that we, all of a sudden, we're making so much more money that we're worth money. It was that we changed how we presented, our company and how our company was then presented to an auction of multiple buyers. You know, it's unfortunate and I hope you're not one of these owners, we've talked to so many that when they have that first opportunity of someone coming to them to purchase their company, they stop.

And they say, well, you know, it's just too much work. It's too hard to move forward. I think deep down inside the business owners, don't think it's going to make that much of a difference. I mean, because you wouldn't leave millions of dollars on the table unless you didn't believe it's going to make a difference.

We have seen every single time someone does not do that. there's been regret and there's been money left on the table. Your time is worth literally millions of more dollars and people don't think that through, they just see that cash in hand. They're not thinking how much more that money that they're leaving.

And in some cases, the money they left on the table was very, very important because, as we've said before, this might be your last deal. Who knows? Odds are, it will be. 

Jeffrey Feldberg: [00:07:43] And so the takeaway is this M&A myth number one is really a myth that unsolicited offers are not the best offers. If you get it terrific. If it's going to be your first time, like it was for us, we went through that to educate ourselves on the process. But if you're going to go through an unsolicited offer, tell yourself upfront, you're going to go through it for educational purposes and not to actually do it.

You really want to get solicited offers where you're in control. You're calling the shots you're prepared properly, and that's where you're going to maximize your value. So, from M&A myth, number one, let's go to M and a myth. Number two, which is believing you can sell your business on your own. And this is a common myth that so many business owners talk themselves into believing, or just believe it outright.

So, Steve, should a business owner sell the business without any outside help? What are your thoughts on that?

Steve Wells: [00:08:38] Well, they shouldn't try to sell their business on their own. And you know, why is it that we think that way, you know, entrepreneurs and business owners, they've been successful and they've been successful for many reasons, but one of them is they have, believed in themselves.

They probably have been, very powerful communicators. They are take charge people. They put a lot of risk out there and the reward is come. The ego in the business owners are a little high. You got to step back and think about it, that you're not good at everything. 

You've been good at building a business, but this is completely different. So, while you might have had some help in building your business and you've built up a team, this is a whole different game, and you're going to need some expertise that probably is not sitting right there in your company right now.

Jeffrey Feldberg: [00:09:28] As business owners it's alluring in and Steve, I'm sure you'll agree with me on this. I don't think I've met a business owner yet, who hasn't said, hey guys, look, the skills that built my business are the same skills that I'm going to use to sell my business. I mean, that's why I'm a success.

The skills that I've honed over all these years, possibly decades. That's, what's going to save the day for me. But it really isn't. And when you understand as a business owner, that it's a different set of skills, well, let me ask you this, you're running a successful company are you now doing every role in that company?

Hopefully the answer is "no". And hopefully you've hired people who are better than you and smarter than you in those different areas. That's, what's going to make your company successful and it's going to have your company thrive. So believing that you can sell the business on your own, let's call that myth for what it is.

So, Steve, if a business owner is now not going to sell a business as a solo type of a project, what happens next? 

Steve Wells: [00:10:35] Well, let's talk about, some of the people that are going to help you sell that business. You're going to need an investment banker. Now, this is different than a business broker for smaller companies, but this investment banker and their team are going to give you a whole new level of skill and understanding of the market place and help you put together the auction.

And they're going to help you, position your company. But this investment banker, is very, very important, on how you pick them. And we're not going to go into maybe the details right now and how you select the investment banker and how you communicate to them. But that that's going to be a key part of, of your team, who else is on, on the team Jeffrey?

Jeffrey Feldberg: [00:11:20] Well, you know, you have the investment banker and one of the, the key roles, at least for us here at Deep Wealth. And when you go through the deep wealth experience, we talk about this a lot and you don't generally hear a lot of this out there, but for me, the key role, even before the investment banker and the investment banker, yes, is critical to the process.

But a Deep Wealth, we have a role that we call the Chief Exit Advisor. So, what's a Chief Exit Advisor, a Chief Exit Advisor isn't necessarily part of your day to day exit team. This Chief Exit Advisor is number one, loyal to you. They only answer to you the agenda for the Chief Exit Advisor is your success.

Because the reality is, and we don't have the time in this episode to go into it in the Deep Wealth experience. We talk a lot about this, but your investment banker. Believe it or not. And your exit team, their agenda isn't necessarily aligned with your agenda. So earlier on in the episode, we mentioned that you don't know what you don't know, and you don't want that to come back and harm or hurt you.

So, the Chief Exit Advisor is there to protect you from what you don't know. Who could the chief expert advisor be? Steve, any suggestions on where someone would look for a Chief Exit Advisor or the kinds of character traits that would be there? 

Steve Wells: [00:12:47] It could be a, another business person. It could be a financial person, but they're, they're the ones that you're going to go to that their only interest and their only bias is. For you and your benefit to help you process and understand you can't, as Jeffrey was saying, your investment banker is critical, but you know, they, they have so many other things that are going to distract their allegiance, who the buyers are and, and what the buyers are going to want for future deals for them, it just creates some conflicts of interest that you don't even want to put in their path and your chief exit, advisor is going to help you bypass that.

Jeffrey Feldberg: [00:13:32] We had to become our own Chief Exit Advisor. We didn't realize it at the time and it would have been nice back then to have the Deep Wealth system that we later created. But for your Chief Exit Advisor to what Steve was saying, you could look at, another business owner who's gone through exits and has the experience.

It could be even another investment banker who has the experience and the expertise. Whoever it is. You want to make sure that they have a winning track record of success. And ideally your Chief Exit Advisor also has what we like to call a golden Rolodex. So, when you bring them on board, they're going to say, you know, what, why don't you speak to this investment banker here and that investment banker there.

And then you can choose between the two of them. Here's some terrific choices for you, for M&A lawyers who can help you with the deal. And when you're working with the Chief Exit Advisor, and they know the winners that are in the industry, success follows success is really that simple. So, when you can build the team around you, everything else is going to fall into place.

another saying that we have here at deep wealth is when the team works, the dream works and that's really what you want to do. So absolutely get the myth out of your head that you. Cannot should not. You should never sell the business on your own. 

You want to have your exit team around you when you're going through that process of selling your company. So, Steve let's move on to M&A myth number three, what is it?

Steve Wells: [00:15:08] Well, M&A myth number three is believing that your deal will close no matter what, you can have your deal. You got these papers signed and it looks like it's going to be a done slam dunk. You've got a closing date, but you know, there are many situations where even though the buyer wants to buy the buyer can't buy, and this is going to be because.

The buyer needs financing as well. It's kind of like if you were selling a house and the contingency was that your buyer has to get a bank loan. Well, you know, almost that simple, many, many buyers are going to have to get, get some kind of debt service to make that purchase and they're going to leverage it.

The buyer is going to have to sell someone else and there's going to be some type of a loan company or in our case, it was the whole bond market. So, you've got to help your buyer.

You've got to help your buyer position their deal, for the people that are helping them. 

Jeffrey Feldberg: [00:16:11] And, you know, what's so interesting 

When we speak with business owners who are in a very fortunate position where they've done things, right. And they're now in an auction and they come to us and they say, hey guys, take a look at this. I have this one offer. And it's the highest offer of all the other offers.

This is the one that I should go with. Right. And our answer is well, not necessarily. What's really important. You need to look at the details of the offer. So, let me give you an example. Suppose you had two offers. One offer was a higher offer, but it depended on financing. The other offer was a lower offer but there was no outside financing. Your buyer has the money in the bank. They could pay you tomorrow if that's what was needed. So, the question becomes, what's the right answer. So, Steve, is there a right answer or how would that work when you have two offers? One offer requires financing. One offer is the cash is already in the bank.

It's set to go. No financing is required. What would a business owner think about or do in that situation?

Steve Wells: [00:17:17] You've got to assess the likelihood that that financing is going to come through. and so, and you've got to look at the, the difference between the two offers. It might be worth a small discount to take that deal. That's in your hand, right there versus, waiting for financing that comes down the pike. 

So, I think you’ve got to look at that very carefully.

Jeffrey Feldberg: [00:17:41] And one of the things that we really like about an auction and why we recommend an auction, right from the start. When you have multiple buyers, who are chasing after your company. Before you sign the letter of intent or before you say "no" to the other buyers, that's your opportunity to go back to the different buyers and ask them to rethink their offer.

So, in the example that I gave earlier, where you have two offers, the higher offer is financing. And the one that is a little bit less money isn't financing, there may be an opportunity for you to go back to the offer that's a little bit less money, but the money's in the bank and ask them to step up to the plate.

But Steve you're absolutely right. It really comes down to the risk appetite that you, as a business owner will have. So, let's share a very personal story Steve, with our listeners, look, we are the nine figure exit guys, and we did our exit, but you know what, we, we made a lot of mistakes along the way. Now, thankfully, this was a mistake that could have happened, but it didn't happen.

And just to be transparent and to put it out there, we had done our diligence on the buyer. They had a track record of success of making deals happen. We knew that they were very well versed and experienced in getting outside financing to close the deal. Steve, when we look back at it, we'll both agree that we didn't really put much thought into, well, what happens if something else goes on in the marketplace that could affect our deal.

So, we were confident that the buyer was able to get the financing and that that happened, but what happened next, nobody foresaw, our deal closed two weeks before the financial meltdown. Steve do you want to talk a little bit about that, of just the timing and what happened afterwards and what we learned after the fact.

Steve Wells: [00:19:36] Well, honestly, I mean, I was ignorant about what, how that would affect the bond market and our buyer was, was completely dependent on getting these bonds floated, and he did it, they got it done. But as Jeffrey said, it was literally days before this crash. And if we had that, closing after that date, there's no way they would've had financing.

And, our whole deal could've just completely fallen apart. Now we dodged a bullet. We didn't even know we had the bullet coming at us and we're very, very fortunate. We can say, we'll talk about this. We time the market. It was pure luck in our case, but it was a very eye-opening experience to us.

And we've shared that with many business owners to really understand what the buyer has got to do to actually buy your business, particularly when it involves financing.

Jeffrey Feldberg: [00:20:32] So the takeaway here, and we're going to put myth number three to bed, is that until the money is in your bank account, that deal has not closed. It doesn't matter how qualified the buyer is. It doesn't matter how much diligence you've done. It doesn't matter how good it feels. It doesn't matter what your investment banker may have told you. Until the funds come into your bank account the deal isn't done. So, myth, number three is out the window until you get the money. That's when the deal actually closes and you have some important decisions to make along the way. So, as we go back now to myth number four, Steve had alluded to that and that is myth. Number four is so many business owners will tell us this.

Well guys, you know what, when I'm ready to sell my company, number one is it's not going to take a lot of time and I'm going to time the sale of my company. So, I'm at the top of the market and I can get the absolute best value, the best dollar for my company. So, Steve, is that fiction or is that truth or reality?

Where are we on this?

Steve Wells: [00:21:40] I think it's a fairy tale. You know, people come to us and we look like geniuses in our timing of the market, but believe me, we weren't geniuses. We were very, very fortunate. It's impossible to time the market. Just look what is going on in our world today and this year. Things happen that no one thought would happen.

So, I think you're delusional. If you think you're. You can time exactly when you're going to be selling your company. So, if you can't time, when you should sell, what should you do?

Jeffrey Feldberg: [00:22:16] It's a great question. but the, the one thing before we answer that question is here's some advice. If somebody tells you, hey, leave it with me. I'm going to time the market for you. As a business owner what should you do, Steve? What, what should a business owner do? So, if I come to you and say, Hey, I'm going to time the market for you.

You're going to sell at the top. What's your response? What are you doing?

Steve Wells: [00:22:36] You're running as fast as you can away from that person, because that's not a good adviser. You're getting misinformation. You can't trust that advice.

Jeffrey Feldberg: [00:22:44] Absolutely. So, what we say here at Deep Wealth, and we talk a lot about this in our deep wealth experience, and that is that whether you want to grow your business so you can keep it forever. Or you want to sell your business tomorrow, the playbook that we teach you in the Deep Wealth experience, the strategies that you learn, they're the same to grow your business or to sell your business because the real answer is you cannot time the market, but what you can do is ensure that you're prepared. You're prepared no matter what happens, no matter what is going on out there. And when you're prepared you have choices, whether you want to look at an unsolicited offer and then take that to the market  and go through an auction and a full process, whether the, the market just crashes in front of you or whether it's booming times, when you prepare you do what you want to do.

And there's a lot to be said for that. So, see if, as we look at this myth, number four of timing, the market, what else would we have to say to our listeners?

Steve Wells: [00:23:50] Well, if you can't time when you're going to exit what you can time is how you prepare and when you prepare. And when do you start preparing? You prepare right now, because it's a process it's going to take you a while to do many of the things that we're going to see. We're not going to create the list right now, but there are many things to do.

And those things take time. Listen, where we find ourselves in a very strange financial time at this moment. Those people who were prepared for it, we've already seen, are doing well.  Some are actually thriving and there are people who are prepared to sell. And for some people, this is a great time to sell because they were ready.

There's money out there that needs to be invested and those people are ready to take advantage of that. Now they would be ready in a year from now. They may be ready two years from now, but they're ready. So, what you have to do is begin the process to put everything in place so that you're ready to seize that opportunity when it comes your way,

Jeffrey Feldberg: [00:24:48] And Steve, what you said is absolutely true and it's really a nice entry into another M&A myth. Right now, we're in the. Coronavirus pandemic. It's just crazy out there. There's a new normal that is being written by the day. We don't know what that's going to look like, but Steve, I hear you correctly.

Did I hear you say that even though it's a pandemic right now that it may be the best time to sell your business because the, the prevailing myth that's out there is when it is a pandemic, the last thing you want to do is sell your business. So, it is again, is that truth or fiction? What is that?

Steve Wells: [00:25:27] Well for many, industries, it's a great time to sell. Obviously, those that have a digital answer that, that are expanding and they were ready to sell. It's a great time to sell right now, also because there are less opportunities to buy companies. It may, in many situations actually inflate the value of your company.

What I'm saying is there are large funds. there are even family offices, there are financial buyers that have money and they have to allocate that money. If they don't allocate it, it's gone. So. They're looking to buy well in sometimes in situations like this, there's not a lot to buy because there's no say inventory of available companies because of the pandemic.

So, if you have already prepared and you were ready and it's something you want to do it, this may be a perfect time to get the maximum value out of your company.

Jeffrey Feldberg: [00:26:25] And, you know, what's interesting. It goes back to basic supply and demand. So, during the pandemic, there's a lot of businesses that are unfortunately, either out of business. And the supply of businesses for sale has gone drastically down. And yes, there are going to be fewer buyers that are going to be in the market, but there are still buyers in the market.

When you're one of the few sellers in the market, you can now control the shots. So, one of the things, and it goes back to the myth that we were just talking about earlier, when you're prepared, you can jump on any opportunity. Now, no one could have timed the coronavirus pandemic that just came out of nowhere and that happened, but when you're prepared, yes.

Now would be a terrific time to begin the process of selling your business. But Steve what happens to all those businesses is a too late as a business owner. If a business owner today is not prepared, should you think they should start preparing their business for sale right now in the middle of a pandemic?

Steve Wells: [00:27:24] Yeah, I think they should. And you know what we've seen in some of the companies that we talk to, it's given people an opportunity to reflect and pivot and change and clean house or whatever they need to do. It's making the businesses more conscious of where they need to go and what they need to do to be productive and profitable in this economy and in the future economy.

So, it's a great time. And, you know, because a lot of companies are taking a hit financially, it's going to be noticed and it's going to be understood that the pandemic caused some of this. And so, I don't think they're going to be devalued. So, I think it's a great time.

It's almost like remodeling, you know, if you're home, go ahead and tear out the kitchen. Let's put in a new kitchen because that's what we need. So, I think it's a great time for companies to get ready, know what they need to do, strategize and begin that process.

Jeffrey Feldberg: [00:28:20] And as we begin to put this myth to bed, M&A myth, number five, that you shouldn't sell your business during a pandemic, what's important to know what your takeaway should be is. Believe it or not, you may actually get a premium. For your company, when you sell it during a pandemic that you otherwise would not have gotten before.

So, know this and know this well, when you're prepared, you call the shots you're prepared for just about anything. And even during what appears to be a challenging time or a pandemic as it is right now, when you're prepared, you can capitalize on that and grab what may be a once in a lifetime opportunity to get the highest value for your company.

So, Steve, as we round things out here, what would be M&A myth, number six, our last M and a myth that we're talking about today in this episode.

Steve Wells: [00:29:09] Well, you are going to be probably pressured and you're going to try to be persuaded to buy into this myth. And the myth is that all sellers must accept a large earn-out no matter what. And the argument is going to go, something like this. Jeffrey and Steve, your business, you really believe is a great business.

Yes, we do. And, and you, and you've convinced me of that. Well, if it's so good and you join with us, wouldn't it be even that much better. Why don't you just come on board, let's join our forces and, you know, keep a lot of your money in this and we're going to build is something that's even going to be better and you're going to make a lot more money.

Well, you know, there can be a problem in that argument. What is it?

Jeffrey Feldberg: [00:29:49] Wow. It's a big problem. Statistics would say, you are not going to get your money. You're not going to get that. Earn-out and I know what you're thinking. Well, wait a minute. It's my company. Yes, it's a new owner. That's come in, but I still call the shots and I'm going to be in there working hard and they're offering me all this upside. Why wouldn't I want to take that? Why wouldn't I get my money? So, Steve, why not all the time, but most of the time, why do sellers typically not get all of the earn out or most of the earn out when the things are just left, as they are?

Steve Wells: [00:30:26] Well, you know, there's so many things that can happen and you don't in most cases have any control of that. What if the contract or the agreement said that you have to hit certain sales numbers for you to, to actually cash out the money that that's owed you? And what if this pandemic hit right now, well, you're not going to hit those numbers. And that was completely out of, out of your realm of control. Or what if, the new owners decide to Institute a new marketing program or a different sales process or discount or expand or whatever it is, and the profitability goes down and, your key earn-out is all dependent on those numbers being hit. Well, you're not going to get your money.  

Jeffrey Feldberg: [00:31:09] And people don't like to generally admit this, and we talk a lot about this in a Deep Wealth experience, but when you sell your business, this is truly an instance where it's a zero-sum game. Either the buyer wins or you win. I want you to think about an earnout from the buyer's perspective, because I know as a seller, as a business owner, you've built your business up.

You've done a good for the community. You've changed the social fabric of society in your mind. You're probably thinking why wouldn't the new owner want to see me hit those targets. I'm going to get new profitability and I'm going to take the company to new levels. And the answer is it's going to cost the new buyer, a lot of money and quite openly most buyers would rather keep the money that they would have paid to you in an earnout have a less profitable company and then dial things up once your earn-out period has gone and you don't get paid the money.

We didn't make the rules. It's whether it's right or not right. It is what it is. And when it comes to an earnout, it's something that we can't strongly enough recommended don't do it. And again, I'm going to go back to that earlier example that I had given, if you have two offers, one offer is more money, but it has a larger earn-out or another offer is less money, but it has no earn out.

Well, you don't have to ask me twice. I'm taking that offer with less money, because I believe in the long run it’s actually going to be more money that you're not going to see the earnout. And Steve what don't you talk about. The power of an auction that when you have multiple buyers in the auction and you can see what the letters of intent are coming in at, and you can see it, how the deal is comprised, why again is an auction so important when it comes to dealing with an earnout?

Steve Wells: [00:32:55] Well, we saw this firsthand. We started off with, Oh, roughly 180 or so companies. And as it got narrowed down, they're spending more and more money doing audits and analyzing and doing their due diligence. What the auction does is it forces these buyers to come to the highest level possible.

If someone comes back and they want to do a 50% earnout, and someone's a hundred, it's so easy for you and the investment banker communicates these things sometimes of what, what these people are going to have to do to get to the level that's going to be accepted. If you think about it, if you're trying to sell anything and you're trying to create a value for this and there's no pressure on your buyer to, to increase that value of course, it's going to be much, much less. The auction creates pressure because these people want your company and they're going to have to compete for it. So, it's obviously going to make that price much higher.

Not every deal is the same, but it's going to help create a parody among all those potential buyers that you're, you're dealing with. 

Jeffrey Feldberg: [00:34:05] I'm going to give you a tip right now that if you remember nothing else from Episode 13 for the M&A myths but this is more than, than worth your time. We teach in the Deep Wealth experience that when you get a sense of that short list of buyers, in the process, you're going to want to do your due diligence on the buyers.

And we talk a lot about how you do due diligence on the buyers. Well, when we were selling our company, we found out that one of the leading contenders liked earn-outs for all the reasons that we had mentioned. So, the best thing that you can do is if you could preempt an earn out before you even get it in the LOI, the letter of intent, that's really your best bet.

Its less pressure is a cleaner process and we made it very clear to our investment banker. That anyone who came forward and in particular, there's one particular group. If they come forward with a large earn-out or any earn-out for, for that matter, we're not interested. It's don't pass, go, don't get out of jail.

It just isn't happening. And the end result was when we sold our company, Steve, how much of an earnout did we have?

Steve Wells: [00:35:14] Well, we had zero earnout. I would never have done the deal. You wouldn't either. 

 Our buyers went on to make a lot of money off our company and sell it. But, still, if it was based on someone else's performance, I don't want to be in that position.

Jeffrey Feldberg: [00:35:30] Absolutely not. So, it was a good news story with us. We had zero earn-out. We kept a little bit of our money in the new company, which actually did very well for us over time. But again, the, the important takeaway is that it wasn't based on any performance earnout. So, myth number six, as we begin to wrap things up is don't buy into what the buyers tell you. And in fact, I think that the buyers have their own lobbyists association to keep this myth alive and out there that you have to accept a larger earnout when you sell your company. It's absolutely not the case.

And when you're smart about it and you deploy tools like an auction, you can begin to call the shots that are in your favor and look after you, which is always where you want to be. So, Steve, as we wrap things up here and close out Episode 13, any parting words of wisdom, no pressure there on you, any, any parting words of wisdom for our listeners?

Steve Wells: [00:36:28] Some of these things on the surface they’re not intuitive. They don't seem natural. And you are hearing voices telling you opposite things like the earnouts or, you know, even auctions. And some people say don't ever do an auction. So you get conflicting ideas, from some people, but just look, just think about it and look closely at why they're saying that and what their biases are. We try to be a voice that is for the business owner, for the entrepreneur, and we've been through it. This isn't theory for us, this is something that we've done and we're just trying to share our experiences so they can help you in your future to build your company and sell it at its maximum value.

Jeffrey Feldberg: [00:37:10] In fact what Steve was sharing right now really gets to the heart of Deep Wealth in why we started deep wealth as a company, and why we created the online experience. As business owners. We're the dreamers, we're the risk-takers we're having the sleepless nights. We're putting everything on the line.

We're transforming the "impossible" into "I'm possible" and we create something. It helps the community. It helps the social fabric of society. We do great things, but why is it as business owners that when we're ready to cash in the chips, we literally dropped the ball right at the finish line. And unfortunately, we get ripped off by sophisticated, experienced, savvy buyers.

And for us, the deep wealth and the Deep Wealth experience and taking these kinds of M&A myths, we're there to level the playing field starting right now, starting today so that you can get what you deserve. You can claim what you've worked so hard for. So, think about these six M&A myths. Take them to heart master them, listened to this episode multiple times.

You're going to want to use these strategies. When you go through the process of selling your business or better yet become part of the Deep Wealth community and join us in our Deep Wealth experience. We'd love to take your blind spots take what you don't know and turn them into strong points for you. So, you can just absolutely crush it on your exit. So, on that note, let's close out episode number 13, and thank you so much for your time and listening to us today.