Danny Beaumont

Having a deal flow gives you a strong advantage in negotiations with sellers as Danny Beaumont discovered during his first business acquisition.

Buying a £3m Revenue Business – With ‘No Money Down’

When negotiating a deal, knowing that you can happily walk away if your requirements aren’t met gives you a potential edge over the other party.

Danny Beaumont, who was fresh to the world of business acquisition, found this to be the case during his first potential purchase. Aside from holding Zoom meetings with the sellers of the manufacturing business he had his eye on, he was talking with other interested sellers who were keen to offload their companies.

The manufacturing business had a turnover between £2.5 and £3 million and a £400,000 EBITDA (earnings before interest, taxes, depreciation, and amortisation). It was being sold by some savvy investors who owned a group of companies.

 

At the time, even though Danny was only part-way through the Mastermind programme at Dealmaker’s Academy, he was unfazed by the negotiations. After all, he knew that if the sellers didn’t agree to his terms, he could simply seek out more favourable deals.

Soon after starting his Mastermind programme, he began mailing inquiries to the target companies on his list. “I’d subscribed to Red Flag database to filter out the manufacturing companies and wholesalers with a turnover between 2 and 6 million in the Northwest region of England,” recalls Danny.

“I filtered it down to about 300 to 400 contacts, and wrote those many letters. I wasn’t sure what the response rate would be; fortunately, it was great.” So he realized that the manufacturing business was one of many potential acquisitions.

“I was in an advantageous situation. I was getting lots of calls in response to the letters. So, when the deal didn’t go ahead, I wasn’t too bothered, as it wasn’t exactly what I was looking for.”

“I had a choice thanks to the deal flow that Jonathan talked about. There was no problem if the sellers didn’t accept the deal structure I suggested. I wasn’t emotionally involved.”

During preliminary Zoom meetings, he discovered that the sellers were working on a deadline. So, he used that to his advantage in the negotiations.

“When we talked about the value of the business, I said if we proceeded, it would have to be on my basis. I didn’t say, ‘Take it or leave it,’ but that was the way it would have had to be. I think since they were professional dealmakers, they had realistic valuations.” “I said, ‘I can move as quickly as possible within your timeframes, but the deal has to be different. It has to be structured this way. That’s how we can achieve your deadline.’”

It was a far cry from Danny’s experience of selling his own company. “When I was selling my own business, it was all emotion. I kept wondering, ‘Am I doing the right thing?’ Besides, there was family involved as well.”

“I definitely prefer how things are now. I didn’t have to buy this business. Being ambivalent about the purchase helped during negotiations. It did come down to, ‘I will not move from this point’. I could have walked away any time. The worst-case scenario is that you walk away, which costs you some legal and accounting fees. I’d structured the fees into my plans anyway, and knew that I could offset them with future deals.”

Being the only interested party also gave Danny an advantage in the negotiations.

“I was their only buyer at that point. And they were the ones who’d given me a timeframe, so I
knew they were under time pressure.”

The business owned a property that Danny wanted to fund the acquisition. “Looking back to how things were when I sold my business, I feel I almost willingly conceded on most points because I was desperate to get the deal done. When you’re in that position, you just imagine how you’re going to spend that money from the sale.”

The deal was structured to pay for the property on day one. All the value in the business was deferred consideration. Danny went looking for someone to buy the property to raise the finance.

“I went through LinkedIn and the Internet to find people interested in it. I had a couple of conversations there.” “A friend of mine, who invests in commercial properties, agreed to buy the property and lease it back to the company.”

Danny then negotiated the rent and lease, and had the lawyers involved to ensure that the property was sold and leased back to the business from day one.

The sellers received the money from the property purchase, and Danny bought the business without investing any funds upfront.

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Even with the deferred consideration, Danny expects the company to produce a profit. “In theory, it should produce a nice profit. As part of my role, I’m to ensure that the referral pipeline is being generated, and sufficient revenue is going to come in over the next few years to pay for the consideration.”

Historically, the business had relied on word-of-mouth advertising and referrals to attract clients and win contracts. Danny believes that will change. “I don’t think it would be too hard to do some low-cost marketing to generate more referrals.” Besides, he intends for the company to bid on more projects. In the past, the company won one in every 10 projects it was asked to bid on.

“If you increase the number of things you bid on, and take up measures to increase your success rate, it shouldn’t be too hard to ensure that the business does what it did last year or more.”

Danny’s friends and family who once doubted him for buying a business with a revenue between two and three million pounds without using his own money have changed their minds now.

“When I told people what I planned on doing when I first signed up for the Dealmaker’s Academy’s course, most of them nodded their heads, but didn’t think it could be done.”

Danny recalls listening to podcasts of the Dealmaker’s Academy while travelling to attend one of the programmes.

“I was in the car when I heard Jonathan’s first couple of podcasts. It ticked all the boxes in terms of what I wanted. I knew straight away that that was what I wanted to do: I wanted to buy a business by the end of that year. It feels great to have done the first one now.”

“My aim is to have four or five businesses with a £10 million turnover, earning £1 million a year, and not working on day-to-day stuff. Instead, I will play golf once a week, and spend time with the family.”

His background in accountancy and management and his experience in running a business will help him achieve his goals, he says. “It makes sense. My background in accountancy and management and having worked in a business led me to this career choice, which I think suits my skills and the lifestyle I want.

“It’s strange being a business owner again after not having owned one for three years. It’s really exciting and different this time. Previously, I was very involved in the day-to-day matters. When that happens, you don’t see the wood for the trees, and you fight the same battles repeatedly.

Now, I know what to do with the business and how to generate extra value from it. I can see a real upside for this business.” He’s already looking for more opportunities to buy and build. “Manufacturing businesses actually lend themselves very well to this type of deal structure because a lot of them own the property, or most of their assets, which are obviously financeable. Moreover, they don’t hold much stock, so they’re cash-generating, which is good from a deferred consideration element.”

He feels that working on rather than in the business is an entirely different experience. “It’s absolute chalk and cheese. When you’re in there every day, you get involved in every problem. I was trapped into chasing the sales and growth and then taking on extra overhead to achieve that growth. I was fighting, but not seeing the bottom-line results that I wanted.”

This time, however, Danny has taken a more objective approach. “I know I need to achieve ‘X’ to make the deferred consideration and pay the rent, monthly salaries, and myself. I know the buttons to press and levers to pull. And it’s a lot less stressful and time-intensive. So I have the time and freedom to go and look at other deals, spend some time with the family, go on a holiday, or even take a day off.”

“The business should produce six figures every year. Not bad for a share purchase deal that took about four months to complete.”

“I don’t think there was much we could have done to make it go faster. Once we did the due diligence, there were a few things we needed clarity on before we wanted to proceed.”

The property side of the deal delayed things slightly, says Danny, explaining that having a second survey done added an extra week to the process. Also, having other lawyers involved in the property deal caused further delays.

Nevertheless, none of it has dented Danny’s enthusiasm for more deals. He has lined up meetings with the owner of another manufacturing company for a similar deal to the first. Besides, he has progressed to the stage of heads of agreement for a company in a different sector.

Danny intends to use the target businesses’ working capital and low-cost government financing for as long as it’s available to finance his acquisitions.

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