Aled Davies

Realising that a massive bank loan is unnecessary to acquire a business had a profound impact on Aled Davies and the approach he took to his family business as he explains.

You Don’t Need Money to Buy a Business

Although he was keen on expanding his family’s clothing and textile printing business, Aled Davies thought that organic growth was the only possible route for SMEs like theirs.

He assumed that acquiring other businesses was something that only large companies with access to substantial bank funding could do.

When he attended the Dealmaker’s Academy’s Mergers and Acquisitions FastTrack programme and listened to the Business Buying Strategies podcasts, he discovered numerous other ways to acquire businesses. He realised that they seemed easier and quicker than the organic growth model his company had used.

“For several years, the company had operated without a clear strategy,” he says, “We just did whatever we could to sell our products to people.” Their products included printed  workwear, team wear, and other promotional clothing.

About five years ago, the company began to focus more on attracting corporate buyers. Things went well for the first three years, and then, disaster struck.

“We had a fire in our premises,” says Aled, which made everything more challenging. “It was a touch and go as to whether we would get through that time.”

The company found new premises and things began to return to normal. But less than a year later, the company was hit by another setback: the COVID-19 pandemic. The national lockdown, which included a Stay-at-home order for everyone except the medical and other emergency service personnel, resulted in a massive drop in orders for the family business.

“Our sportswear business represented about 40% of our turnover. And that part of the business pretty much stopped overnight.”

Luckily, Aled used the lockdown as an opportunity to discover how to grow the business. He read Jonathan’s book, ‘Business Buying Strategies: The Solution to Your Business Growth Problem’. Later, when the lockdown eased, he signed up for the Mergers and Acquisitions FastTrack programme.

“I was interested in buying another business and trying to grow our company that way. We had tried the organic growth route, and it was tough. Our business had built up before the fire. We got to a certain point, and it felt as though we’d hit a bit of a ceiling. I wondered how we were going to get to the next level without spending loads of money on investments.”

What he discovered on the programme was a revelation, he remembers. “The deferred payments thing was a big eye-opener. I always thought people who bought companies had to take on some sort of bank finance, a massive loan. It always made me think it was out of our reach. I didn’t really want to put us in that position.”

Another welcome surprise was learning that as a buyer, you can renegotiate details of the deal as a result of the due diligence process. The fact that it was possible to acquire a company without making a substantial upfront payment and to spread the payments over several years were welcome information.

“That was the moment I realised that there was really nothing to stop us from doing this ourselves.”

Besides, he was motivated by listening to the success other people enjoyed by using the same techniques.

“It made me think, ‘If they are doing it, we can too.’ It’s just a bit of a no brainer. If we don’t find a business to buy, we don’t. But there’s nothing that is really stopping us from trying.”

Excited by what he’d learnt from the Dealmaker’s Academy, Aled decided to take action. “I knew that we had to minimize the downside as much as possible and go from there.”

Aled sent enquiry letters to companies that offer a similar or complementary product or service to the family company.
“I sent out a couple of hundred letters. It was surprising to see the many people who were interested in selling their companies get back to me.”

“I expected to probably hear back from a couple, but I had in the region of 15.” He was a slightly taken aback by how few business owners seemed to understand the selling process. “Something that was discussed in plenty on the Dealmaker’s Academy podcasts and courses was how dealmakers needed to know more about buying the business than owners do about selling. Of the people I interacted with, I could easily tell that they really didn’t know the first step to selling one’s business.

“Jonathan once said that most people have unrealistic expectations of what their businesses are worth, which was also the case.”
Aled whittled the list of sellers right down. “A couple who I thought would have probably been good for us didn’t happen.”
Eventually, he settled on an owner who was keen on selling and whose small company would be a good fit with his own.

“I used the Dealmaker’s Academy’s script as a guide, and improvised it a bit to suit our industry.”

“It wasn’t going to be an enormous deal, but it would add 10 to 15% to our turnover if it went through. We couldn’t grow that much organically over 12 months.”

“After a few phone calls, I went to meet the guy. The two calls had given me the information I needed for the negotiations. I met him, looked at the equipment he had, and then made an offer.

“At first, he didn’t like my offer, as he wanted everything in a lump sum. Who wouldn’t? So, Aled thanked the vendor and left.

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“At the time, I was speaking with two other companies, so I was happy enough to walk away. That’s another thing I learnt from the course – the importance of having a deal flow. I felt confident enough at that point that if it didn’t go ahead, I could move on.” Besides, there were aspects of the business he didn’t like.

“One of the things that Jonathan suggested was to try and avoid buying businesses that were going to give you a lot of extra work. Part of my initial reluctance to this deal was that it was a lifestyle business. The guy was running a business in his house using a couple of embroidery machines and printing equipment.”

On the plus side, the owner did have a website that brought in traffic despite little marketing. “We wanted his customer base and ongoing contracts. And I knew we could very easily bolt that side of the business into our existing company.”

About a week after the meeting, the vendor reached back through email to say that he’d reconsidered the offer.

“And he added that he would be happy if the deferred payments could be spread over 12 months. I was okay with that as well, as it’s not a particularly huge deal.” Within a week time, the agreement was signed.

“He said that he wanted to change the initial payment structure, which I was happy to do because I’d gone in low on purpose to give myself room to negotiate up.

Some days later, Aled collected the equipment he’d purchased from the vendor. “We didn’t need his assets and machinery. The course taught us to recover the payment as quickly as possible, so we sold the assets we’d acquired, as we didn’t need them. We got more than what we anticipated for those assets as well, thus funding pretty much all the initial consideration. Within two weeks of doing the deal, we were back to break-even level.”

Aled’s in-house sales team started following up with the owner’s previous customers, which, in turn, resulted in more orders. “There was a lot more business he could have been getting. I guess he only had limited capacity, so he couldn’t take large orders or provide different services.”

“One or two of those accounts have already become worth a lot more money to us. For example, one company has placed orders worth an additional £10,000 to £15,000 with us. They definitely weren’t putting those orders his way.”

If things continue, it could mean that the deferred payments are funded by the sales from
the acquired company.

Aled’s experience with this acquisition has shown that taking on more companies of a similar size would be beneficial and relatively straightforward. Each company could provide
new customers, sales opportunities, and more web traffic.

“We could just absorb them into our existing infrastructure. We already have finance, sales
teams, and staff and plant machinery to perform the work,” says Aled, “There is often a lot of untapped potential in a company’s customer base.”

Presently, he’s finalizing another deal, and looking for larger acquisitions that could double his company’s turnover overnight.

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