HOW BUSINESS ACQUISITIONS AND REAL ESTATE SYNDICATIONS WORK
Excerpt from the Raises.com Book
The following is an excerpt from the Raises.com Book at Raises.com/book by Our Contributor Natu Myers
Acquiring a business and doing a real estate syndication could have many similarities. For example, both require identifying and evaluating investment opportunities, negotiating terms, obtaining due diligence information, and raising capital to complete the deal. The goal in both cases is to purchase an asset that will generate income or increase in value over time.
A key similarity is that both types of investments often involve a team of professionals working together to evaluate the opportunity and develop a plan to finance and manage the asset. This team may include lawyers, accountants, and other advisors who help identify risks and opportunities and ensure that all necessary legal and financial documents are in place.
Both business acquisitions and real estate syndications also involve a negotiation process to determine the purchase price and other terms of the deal. This may involve negotiating with the seller or owner of the asset and with any lenders or investors providing capital for the acquisition.
Finally, both types of investments require raising capital to complete the deal. This may involve seeking investors or lenders who are willing to provide funding or developing a financing plan with a combination of debt and equity.
Overall, the process of acquiring a business is very similar to doing a real estate syndication, which is why these topics are often combined in one chapter or course.
We will first go through the process of acquiring a company, then explain some of the differences between this and doing a real estate syndication.
To summarize the process of acquiring a company:
Develop your acquisition criteria.
Connect with potential sellers through networking or messaging on LinkedIn
Build rapport and sign a non-disclosure agreement (NDA) with the seller
Obtain due diligence information from the seller.
Review and verify the information with analysts and yourself
Submit an offer, ideally exclusively.
Raise the capital needed to close the deal.
Step 1: Create your acquisition criteria and position your brand. This should outline the specific characteristics and features you are looking for in a target company. This will help you narrow down your search and ensure that you are focusing on companies that align with your investment goals. Focus all efforts on attracting or “originating” sellers of this type of company.
If you are looking to purchase businesses in a particular niche, it is essential to have a high volume of traffic from company owners in that niche that you are contacting and prospecting. There are various ways to approach sellers, including using brokers, investment banks, consultants, or contacting them directly.
One option for sourcing transactions without using a broker is to connect with online groups, such as Raises.com. These groups can be a useful resource for finding deals and connecting with potential sellers. Alternatively, you can reach out to investment banks in your network for assistance in finding businesses for sale.
While traditional brokers can be a helpful resource, they may be slower in providing information compared to other methods. To find financing for projects in your chosen niche, you can consider sending a message like the following to your network: "Hi all, I am seeking financing for certain projects in [niche] and do not charge upfront fees because I will be deploying the capital and making control acquisitions. If you meet the following criteria, please email them to [your email]. You are also welcome to inquire about us as needed." Be sure to include your acquisition criteria in the message.
Letters of commitment:
For legitimacy, many sellers and brokers ask for letters of commitment or proof of funds because there are many people who are new to acquisitions who may be a burden on the seller's or broker's time because they don’t know how to raise money. We've found through our letters of commitments it has helped dozens get through some broker and seller scrutiny. Yes, draft terms sheets from lenders also help. Ultimately it is confidence that can also help you through this. If you need a commitment letter go to Raises.com/CommitmentLetter and our company will try and offer you a commitment letter to get past this seller phase.
Online presence
Additionally, we can get a press release out as well on a reputable website, and setting up the website will help for sure. Phone number is recommended, but just a simple Google Voice or Zoom number would do. Close.com would be better for your serious outreach later on so you can track everything with an assistant under you. For the website are assistants will send a simple landing page with the following information (the brackets are parts to be potentially fill in)
About Us
[YOUR COMPANY NAME] seeks to make control investments and acquisitions in small and medium-sized businesses with a focus on these industries: [YOUR ACQUISITION NICHE] and [INSERT ANY OTHER INDUSTRIES OR SUBINDUSTRIES HERE]. We are not brokers; we are principal buyers. Our goal is to fund and close transactions within 30-90 days of entering a Letter of Intent. We work with the management team of the businesses we acquire to improve performance and efficiencies, while also ensuring that robust compliance frameworks are in place.
Example Acquisition Criteria Outline:
Our target companies generally have the following characteristics:
Revenues of $1m-$5m
At least $1m of cash flow
Principal operations in [AREA YOU WANT THE DEAL IN]
In business for at least five years, with a minimum of three years of prior financial statements
Business Owners:
We help business owners retire by buying their businesses. If you are selling your business and it fits our acquisition criteria, we would like to hear from you.
Building a board can also be helpful. In online forums, on Linkedin, or with networking groups like Raises.com, get yourself introduced to people who have experience in your acquisition niche.
Thank them for taking the time to meet with you
Tell them how you found them and your plan for the project
Ask if they have any questions for you
Explain that you're looking for someone with transactional experience and ideally sector experience
Compliment them on their background and show that you've done your research on them
Ask if there's anything you should know that will help or hinder your efforts to grow the project
Ask how they believe they can help the project and how their experience can be an asset
Tell them you'll get back to them at a certain date with an update on your decision
Remember, you don't have to build a board at all. You can learn how to do everything needed before a Letter of Intent on your own, including financial analysis and understanding a business's organizational chart. If you do decide to build a board or bring on advisors, you can simply ask them to participate in one meeting per quarter and offer them a percentage of acquisitions and profits that is fair, without requiring any cash out of pocket."
Step 2: Book appointments with sellers of target companies that meet your criteria. You can do this through networking with other investors or by reaching out to potential sellers on LinkedIn.
Step 3: Get a first call or meeting with the sellers to build rapport and sign a non-disclosure agreement (NDA). This will protect your confidential information and allow you to discuss the details of the deal openly.
Step 4: After the NDA is signed, request a due diligence summary from the seller. This should provide detailed information about the financial health, operations, and potential risks of the company.
There are a lot of questionnaires that we recommend people go through to ensure they are thorough in their due diligence. Below is an example questionnaire you can present to a seller.
Legal Due Diligence:
Corporate structure
Parent company and all incorporated subsidiaries of the issuer
Incorporating documents for the issuer
Any other "doing-business-as" names being used
Fully diluted share and debt structure of the issuer
Directors, officers, and significant shareholders (list of all directors and officers, list of all shareholders owning more than 5% of any of the companies)
Financial statements and forecasts (all financial statements for the past three years, copy of current forecast, term sheet for the current issue, sources and uses related to the issue)
List of all lawsuits and litigation of those owning more than 5% of the associated companies over the last five years
Service providers (auditors/accountants, lawyers, custodians, if applicable, all banks where accounts are opened, including lawyer trust accounts and custodians, if applicable)
Marketing materials (recent investor deck and any other presentation materials, list of all websites)
Copies of applicable laws and regulations (copies of laws and regulations the company is required to meet with service and product on behalf of clients, list of any licenses required)
Current or proposed commercial agreements (list and copies of all signed agreements, copies or descriptions of proposed or pending agreements, copies of any leases entered into
Existing overhead expenses (list of all current and planned recurring overhead costs, including salaries, consulting payments, rent, and other recurring costs)
Other materials as requested resulting from review of the documents listed above
Business Due Diligence:
Valuation of the entity the investors are investing in (method used to come to this valuation, assumptions, returns)
Pricing model and how it is distributed among customers
Historic revenues
Breakdown of capital raised to date if applicable
Length of investment lock/illiquidity, if applicable
Market segments served
List of customers (market segment they are in, amount charged to each customer, testimonials in print or video, achievement of promised outcomes, repeat customers)
Larger trends in the market segments served
Awards won by the company
Customer acquisition methods
Completeness of product/service and plans for upgrades and associated costs
Competitors
However, there are a few things that are particularly critical to consider. First, it is important to check for scams and fraud by doing court case lookups on the principals involved. You can do this by visiting websites like Unicourt.com and Pacer.gov. Pacer charges a few cents per lookup, but it may take some time to get the results. Make sure to also do a quick sponsor background check to see if the principals have been involved in criminal court cases or securities fraud. You can also do a quick Google search to see if there is any relevant information available.
Step 5: Review all of the information provided in the due diligence summary. Have analysts and yourself verify and substantiate the information to ensure that it is accurate and complete.
In addition to checking for scams and fraud, it is important to review the securities documents for the investment opportunity. This includes the private placement memorandum (PPM), which provides details about the company, the offering, and the terms of the investment. You should also review the subscription agreement if the investment involves equity. On the financial side, it is important to review the company's financial history, including its five-year operating history and statement of cash flows, as well as all of its financial statements. This will help you get a better understanding of the company's financial health and performance. It is also helpful to review the company's five-year operating history, as this can provide insight into its growth, stability, and potential for future success.
It is also important to hire a chartered financial analyst or accountant to review the company's projection for the next three to five years. Freelancer.com, Upwork.com and even Fiverr.com could be places to start if you’re on a shoestring budget. Go to Raises.com/Jobs to see examples of job posts you can use.
This can give you an idea of the company's expected growth and financial performance in the future. After reviewing the financial information, it is helpful to consider the organizational basics of the company, including its marketing materials and organizational charts. This will help you understand the structure and leadership of the company, as well as its marketing efforts. You should also review any additional information about the company, such as its customers, tax paperwork, and any disputes or leases it may have. This can give you a better understanding of the company's operations and potential risks or liabilities. Finally, you may want to consider any additional or ancillary information that may be relevant to your evaluation of the investment opportunity. This could include operational details or information about the company's environment or industry.
The offer being presented to you is a result of your intention to purchase their company. As the investor, it is crucial that you assert your position and take into account the expectations of other investors in similar situations. Ensuring that the terms of the offer align with industry standards and typical investor expectations is crucial in order to solidify your role as the investor and to ensure that the deal is fair and mutually beneficial. It is important to remember that, as the investor, you are driving the negotiations and shaping the terms of the deal. Therefore, it is essential that you approach the negotiations with confidence and clarity, be slow to compromise and quick to collaborate with the seller!
Hope you enjoyed it!
Sebastian Amieva
Mergers and Acquisitions Expert
Sell Your Company or Start Learning How to Businesses Now At www.sebastianamieva.com
Brought to you by my friend, Scott Oldford
Scott Oldford is one of the top online business mentors and advisors and he also owns dozens of businesses that collectively generate tens of millions of dollars a year in multiple niches, countries (and even languages), across the world.
In his new "Investing with Scott" newsletter, he gives you a behind the scenes look into acquiring, building and scaling businesses based on his experience of helping 100's of Entrepreneurs scale past 7 & 8 figures.