E161: Joanna Oakey: Navigating Emotional Dynamics in M&A Deals

[00:00:00] Ronald Skelton: Welcome to the How2Exit podcast. Today, I'm here with Joanna Oakey. Did I get that right? I should have asked beforehand. 

[00:00:05] Joanna Oakey: Perfect. You got it perfect. 

[00:00:07] Ronald Skelton: Okay, cool. She is a author, attorney, podcaster. She's got her own show and stuff. We're going to hang out today and share a lot of information that she's gathered over the years.

[00:00:15] And I'm looking forward to this, learning from you today. So thank you for being here.

[00:00:19] Joanna Oakey: Thanks for having me on the show. Good to be here. 

[00:00:21] Ronald Skelton: Awesome. And, for those that can't tell by the accent, where are you located now? 

[00:00:26] Joanna Oakey: Well, I'm in Sydney, Australia. 

[00:00:28] Ronald Skelton: Cool. And which is morning her time and it's afternoon my time. So we took a little bit of a play to get the times where we both could have something comfortable to be on the show.

[00:00:37] I'm looking forward to this. You have your own show. You've interviewed a bunch of people yourself. You've been a mergers and acquisition attorney for a while. And, you have a bestselling book on the subject. I think there's a lot to, to share with our audience from your lessons that you learned over the years.

[00:00:51] Joanna Oakey: Awesome. Look, I'm happy to answer anything. And hopefully it's relevant, to your listeners. But I think some of the fundamentals of this stuff is, is the same. No matter what jurisdiction country you're in. Some of the laws are different. Some of the terminology is different, but the fundamentals are the same essentially.

[00:01:08] Ronald Skelton: Yeah. It's funny as I use, we were talking about beforehand that I use a lot of AI tools and stuff to do the editing and stuff. I can't use any ones to auto generate anything because of all, the terminologies inside of this world, EBITDA, SDE, it gets them all wrong. Like all the, auto transcripts and stuff, it doesn't understand the M&A, SDE, EBITDA, all that stuff.

[00:01:27] They're like, it just butchers them all. I have to be able to edit it. So some of the tools will generate like, here's some good clips for you. And they can't use any, and they're not editable. So they're like, you can't use them because, they got M& A wrong or EBITDA is, something weird or whatever. 

[00:01:40] Joanna Oakey: It's an industry with a lot of jargon, isn't it? You talked about the book, I'll show the book later. But, I've actually got right at the end this, chapter that I call jargon busting, because I think that's the thing. People who are, and I do a lot of work in what I call SME M and A. I don't know if that's the same terminology for you guys, but, SME is like small to medium enterprise.

[00:02:01] So here in Australia, that's organizations that sort of are under a hundred, 200 people. And that market in Australia is super fragmented, but there's also very little, I would say very little understanding in comparison to larger organizations of the area of acquisitions and sales.

[00:02:20] And so it's all jargon. It's all jargon when people have never bought a business before. Never sold a business before. Or never operated a business. I mean, operating a business, you might understand EBITDA, but some of that other jargon, people have run a business and are incredibly successful, but never heard some of this terminology.

[00:02:41] I think that, it's a good thing to call out because it is one of those things that's unusual about our industry. 

[00:02:46] Ronald Skelton: It is. And, I tell people all the time, they're like, I don't want to work with a broker. I want to off, do off market deals. I'll say, great. Now you've got to become, there's a role of the broker you have to play if you're going to do off market deals.

[00:02:55] And they're like, what's that? I was like, educating them all these terms you're going, you're wanting to use. Because they don't know that, that seller has no idea what an EO or an LOI is or an IOI or, a letter of interest, or the exclusion periods, all this stuff looks foreign to them, right?

[00:03:09] Purchase and sales contract. All they've never known is buying a piece of real estate probably. And they, they want to see a purchase and sales contract and a closing date. Likethere's more steps here. People don't understand that when you're playing with the off market deals, you take on their role as a broker, as an educator of the process and the terms. And you got to build a deeper rapport because, now they have to trust that you're not just handing them weird contracts for no reason.

[00:03:31] Let's talk about your, like, how did you get in this space? You've been doing this for a while now. I know you're an attorney in this space, but why M& A? You could have been a divorce attorney. You could have been a prop, there's a million things you could have done. You could have done patents. How in the heck did you end up on my podcast?

[00:03:46] Joanna Oakey: Well, so I've been in this industry for, I'll say two decades and that makes me sound really old. So like 20 years, I've been doing this stuff. But I really fully niched into it, maybe I'm saying maybe 10 years ago. And prior to that, here in Australia, I said before, it's a bit of a fragmented market.

[00:04:07] It's a really fragmented market for the legal services for buying and selling businesses. Here in Australia, you might have general commercial lawyers who will work on a business sale transaction, maybe like one a month or one every two months. And the problem is each deal can be very different to the others.

[00:04:28] Selling one industry can be very different to another industry, blah, blah, blah, blah. So it's one of those things that not many people niche into. And I guess, I saw that opportunity in the market with this fragmentation, with this lack of, like, the bigger end of town, they have specialist M& A lawyers, specialist M& A advisors. Who know the area forwards and backwards, deal with it all day, every day, but the SME sector here in Australia didn't have access to that.

[00:04:54] Usually they use generalist lawyers who just didn't have that day to day expertise. And so there was that, I saw that opportunity in the market. And I'm an entrepreneur at heart, right? So I looked at the market and I was like, where's the opportunity? Where can we make the most value?

[00:05:10] But on the flip side as well, I was never one of those lawyers that, enjoy talking about risk. So law is all about risk. Essentially at heart, right? And risk management, but that wasn't me. Like I'm the world's most eternal optimist. I like to focus on the positive. I like to talk about growth.

[00:05:27] I like to find opportunities. So I just found that this whole thing with law was butting up against who I am, the values, what made me tick. But every time I did a deal, every time I got involved in a transaction, I was like, yeah, I love this because I'm like, being involved in a sale transaction is about finding the win win. In good deals should find, the lawyer's role is find a way to get them done in a way that works for both parties ultimately. And that's like almost no other area of law. So other areas of law, like either, they're aggressive or they're finding risk or all of those things. I was drawn to that area. I love those matters that I worked on where I was able to help find the win win. And you know what, this area is one where our clients are full of emotion as well.

[00:06:15] And, because sellers, this is quite often, they're baby. Their business baby that they've built over all of these years. It's a really emotional process when they get to sale and, on the flip side for buyers. If buyers haven't done it before, it can be a really emotional journey as they go through this process of this desire to create that future that they have in their mind versus the concern they have about entering this world that they, they don't really understand the risk in. One of my degrees, is in psychology. So I, I did a psychology major as well as, law and marketing. 

[00:06:55] And all three play a lot in my day to day role everywhere, but psychology actually plays the largest role. I've always found that, by understanding people, you can make brilliant deals happen in this area.

[00:07:10] But anyway, super long answer. That's why I got into it because,number one, I felt there was a real need. And I actually started, the transactions that I worked onearlier in my career were large, larger transactions. But it was in working and I worked for some big legal firms, but I was just like, I was never someone who was very good working under other people.

[00:07:33] I'm a bit of a, like, I have to be the master of my own destiny and go and create it. But, what I got out of that was look at the opportunity for great specialist representation. Larger organizations have look at this missing element for SMEs. And when you pair that together with the fact that I just, I love the area.

[00:07:52] My belief is you've got to love what you do every day in work. That's how I ended up in a long answer. 

[00:07:59] Ronald Skelton: Oh, that's a great answer. And a lot of people don't get, there's a couple of things that you said in that conversation there, that a lot of people don't get that this truly is their baby. 

[00:08:06] I had a seller on here once and we didn't end up going live with the show. We recorded it, cause it was during his negotiations of selling the company. And when he sold it, the owner, like you can't tell people like certain things. And we had a lot of that in the show.

[00:08:20] He just asked me not to air it and I didn't. It was on hold until afterwards. But one of the things he said,I said, this has got to be your baby. He goes, my oldest kid is 22. I've had this business for 38 years. And then I got it like, people don't get that. And he said, as much as I hate to see that, say that, I would go home in the evenings and eat dinner with my kids and play games with them, helping with their homework, but I pulled 60 hours a week, 80 hours a week at this company, right?

[00:08:43] If you look at it, they spend more time and energy a lot of times, because the company is feeding the family and the company has given the family the lifestyle that he thinks that they need or that he or she thinks that they need. A lot of times the company consumed more time and was there before and after the child is born and left home and went to college. It paid for that kid's college. So in some aspects, this was a more critical part of their life than their own kids were. There's a deep psychological connection to this. And if you don't deal with the human side of this, a lot of times you still won't close. 

[00:09:13] Joanna Oakey: And that is so true. A hundred percent agree with you. And I understand a lot of your listeners are buyers. And I think that's like a critical insight for buyers to understand. This EQ of understanding the seller so that you can make the deals happen, because, most deals will hit some sort of roadblock.

[00:09:33] That's just the nature of the area because of all of this emotion and concern about risk and, all of these other things that are going on in the background. But as a buyer, if you're really attuned to what is really going on, it's rarely what it looks like on the surface. usually there's something else going on behind, but behind the doors.

[00:09:53] And I've got lots of tactics that I've built over time to try and deal with it. Try and keep deal momentum moving quickly, like that's really important to move people through so they don't think about it too much, whatever. But as a buyer, you have to be careful not to push your sellers too far.

[00:10:07] And it is always about finding that win win and bearing in mind the, the human element behind the deal, because sellers can get really obstinate about silly things sometimes. It would appear to be silly things on the surface, but quite often what's happening in the background is that, that fact that they either number one, there's sort of two emotional processes that I see in sellers. Are the number one, they can't imagine their life post sale and they get the jitters at that point. Or number two, they worry that they've not got the best deal.

[00:10:44] Because it's their last opportunity to, if they're moving into retirement, of course there's all sorts of different sellers, but quite often they see this as their last opportunity to really, liquidate that asset that they have in their business. And, they worry quite often right at the end.

[00:11:02] Could I get a better deal out there? Or am I carrying too much risk into the future? And so,I think from a buyer's perspective,I wouldn't go in there talking about all the changes you're going to make in the business as an example, because like this is quite often the way they've set everything up is, because this is the way that they genuinely think it works best, right? 

[00:11:25] Ronald Skelton: Yeah. It's like calling their baby ugly at that point. Like, I'm going to do X, Y, and Z. And we're going to do X. Like,you can actually see people's demeanor change. I was on a call, a guy asked me to join a call with him and it was like a second or third call and the owner and say, Hey, would you join in with me? And help me get to this call.

[00:11:40] He's had a rough time with this owner. Well, he's on this call because he's given this guy kind of the results of his SWOT, right? He did a strength, witnesses, opportunities and threat. And I'm like, that part of your analysis is none of that seller's business.

[00:11:53] He doesn't really want to know what your SWOT is. It's important for you to do one. I get that, but you're not, there's a lot of things you need to sell to that business owner and that's not one of them. It's absolutely not one of them. And you can just see the business owners like, we're on a zoom call and you can see him just like,you can see the gears turning. He wasn't liking what he was hearing. 

[00:12:12] He was probably in his early thirties. And here's a 65, 70 year old man looking at this 20 something, 30 something year old, kid in his eyes thinking he's going to change everything at his company. And at one point the owner, he almost bit, who do you think I am? And he stopped. He's like, I'm sorry, because I'm a little emotional about what we're talking about here. So can we make another call later? When we got out there, I talked to the guy and I was like, that was the worst call. Look at your phone.

[00:12:36] I can see him glance down at my phone too. I know he knew what I was sending him, but you wouldn't listen. So don't ask me to come back on a call if you don't want to take advice. Right? And, a lot of it has to do with, rapport is more important, I like what you said earlier about the EQ thing, because actually I've written two articles in the last two weeks about EQ.

[00:12:53] I think EQ is more important than IQ in most business transactions. I would rather have somebody who's emotionally intelligent, understands how to read people, somewhat empathetic, but some just understands the room and can read the vibe in the room, than I can with the person that has 180 IQ all day long.

[00:13:10] And the reason behind that is, is these deals are made and broken by the rapport and the respect you get from each other. You know that it's not always the highest offer that gets the deal. It's the buyer that the seller loved, right?

[00:13:24] And it could be six figure difference between on an eight or nine figure deal, or, even on some seven figure deals, it can be a six figure difference between those two offers. And that seller is going to take the one that's a safe pair of hands. He trusts and likes over the other guy.

[00:13:39] Joanna Oakey: That is so true. And there's, we have clients who are on sell side who have, there's all sorts of different motivations for people at sale. And different elements that concern them. But consistently in a lot of clients, I say, who've built up their business over a lot of years, they want to feel that the staff are going to be looked after. They want to feel that the clients are going to be looked after.

[00:14:04] They want to feel that brand that is pretty ingrained, attached to them personally is going to be looked after. I think it's about buyers who come in and who would just about the financials, sometimes we'll miss that overlay of those deeper elements. And of course, the seller is concerned about the financials, but I think 100 percent correct that it's that there are these other things that you just have to be really mindful of, respectful of.

[00:14:36] And indeed those are the things when you take over a business that are likely to help you make the most out of the business as well. And I think buyers coming in a classic mistake is coming in and making changes immediately. I have so many examples of this over the years, but one particular example. 

[00:14:57] We were acting sell side on this particular one. It was actually, a business advisor who I thought would understand this space because they, dealt with their clients, buying and selling at times. But anyway, they sold their business and they built this business up over 40 years. All of the things that we're talking right now, emotionally connected to the business and the staff and the clients and all of those sorts of things.

[00:15:20] And, it came to sale and, our seller had been really careful about choosing the buyer. The buyer came in, but as soon as, and there was a retention. And in Australia, we call these things, lots of different things actually, but money that's held back and paid post completion based on certain milestones.

[00:15:37] So sometimes they're called retentions or earnouts or holdbacks, or, can be called all sorts of. 

[00:15:43] Ronald Skelton: We call them holdbacks or, earn outs and very common here. Yeah. 

[00:15:46] Joanna Oakey: Yeah. So in this, in this deal, there was a, a hold back. And what happened is the buyer came in and made all of these changes immediately in the business.

[00:15:57] But the problem was the seller was still in the business and, the buyer had done that on purpose because, it's a normal thing. And in order to transfer the value, you have the seller stay in the business. Consulting to the business for a period of time. But the problem is, he was offended.

[00:16:14] By all of these changes that the buyer made immediately. And it just went to crap. Like these two, them were at war with each other. And of course what happens then, it's the argument about this payment ultimately of the, of the holdback at the end holdback period. And the business didn't perform.

[00:16:35] The business didn't perform. The reason it didn't perform, was because there was so much poison that was happening between the buyer and the seller. Because the seller was so offended by all these changes that have been made in a really bullish way by the buyer. And I just thought if anything is a classic example of how that created a lose lose for everyone, that is it.

[00:16:56] I'm really strong on, of course, buyers have, you have your own idea of the business. And you're not going to buy a business if you don't see opportunity in something that you can contribute to it, that will make a difference to its performance moving forward. But it's about, softly, softly, slowly, slowly. 

[00:17:13] And winning the trust of those key stakeholders in the business rather than being a bulldozer, I think. 

[00:17:20] Ronald Skelton: Yeah. You think about it though. He comes in, he's bulldozing his way and making a bunch of changes. The old owners there, who do you think all the employees and customers are loyal to?

[00:17:29] And if he's fired up, he's telling stories. Nothing tells a hotter story than somebody mad. You could be happy with the product and not tell anybody. Somebody gets great service at a restaurant out of 100 people getting a great service at a restaurant, one of them might lead a great review. Out of 100 people getting a horribleexperience at a restaurant, 85 of them are going to go find someplace to tell the world about it.

[00:17:50] So if you look at that, that's that owner is if he's human and acting on human psychology, he's telling his story to people. He's telling the story to his favorite customers when they're playing golf. Whether they play golf or fish or whatever they do to hang out, he's built 20, 30 year relationships with those customers and he's telling them.

[00:18:09] I can't believe this guy's changing everything. He's gonna mess this up. That is a poison pill to the entire company. If you really got to make that many changes and you're not going to make that many changes, the best thing to do, I think, is to not retain the original owner, right? You can't.

[00:18:22] Joanna Oakey: Yeah. I completely agree. Absolutely. But even having said that, I still think you need to be very careful about that decision of the timing, of the changes and the extent of the changes. 

[00:18:36] Ronald Skelton: we had this conversation earlier with somebody on one of the shows or, I think it was one of our networking groups.

[00:18:41] And he says, Hey, we've got something. It's a slight turnaround. They're performing, but not where they used to be and not where they could be. When I get in, I got to make a bunch of changes. And I said, he goes, how about doing that? Cause I've heard you say on a bunch of shows where the advisors say don't do anything for the first 30 to 60 days, just watch and document.

[00:18:57] And I said, the only way to do it that I know of that works is take all your lead guys, take your SWOT analysis, keep it private. Don't tell anybody about it. And they sat down with every one of the top people there and even some of the line employees and say, if you could make anything that would improve the, any change that would improve the company, what would it be?

[00:19:13] And collect them all. And they figure out which ones of them line up with your SWOT and pick something. Now you look and it helps. Now you've got people that have been wanting to make these changes for a while. There's certain things they think that would make things better. They probably voice it and never got heard.

[00:19:27] You can make those in the beginning. Even in the earliest parts of it, because it came from the employees that aligned with what you knew you needed to do. And now you're, now you've got allies. As opposed to going in and just running off your list, not getting the voice of the people that have been there for 30 years. . 

[00:19:45] Joanna Oakey: I just think that's a fabulous strategy. It really is. And it's about establishing that rapport with I guess it's you know, we talked before about EQ. It's about that EQ as well in understanding the, the fears of the staff as someone new comes on board. Because, their work day is, fills up a massive part of their life and there can be a lot of fear from, staff when there's this change of ownership.

[00:20:14] What does this mean for me? What does it mean for my working environment? What does it mean for my security in my role? And anything that you can do to alleviate that fear, but also instill a bit of ownership and, motivation and vision, I think is, is a great thing as well.

[00:20:34] Ronald Skelton: So let's go into, what's one of the craziest deals you've ever done? Like you, I don't know, government contract or some weird manufacturing? Like you've got to have come across as like, I run into things all the time. I didn't even know we're businesses, right? 

[00:20:48] Have you ever been like really surprised by something when they try to sell a business? You're like, okay, I guess somebody has to do that. 

[00:20:53] Joanna Oakey: Do you know what? No, I can't think of any. I mean, gosh, we've been, we've been on transactions, almost any kind of transaction you can think of. Oyster farms that would, that was an interesting one.

[00:21:05] I didn't know anything about the oyster farming business before we did, we did, I knew I loved to eat oysters, but that's all I knew about oyster farms. 

[00:21:14] Ronald Skelton: I don't eat them raw, but I like them on the grill. 

[00:21:16] Joanna Oakey: Yeah. And, I don't know. Pet breeding businesses and pet, like all sorts of different interests, interesting industries out there, I guess. That's another thing, like when we niche into, because we also have a commercial, and we deal with SMEs, just generally in their commercial law, but we've got this niche area that's about 65 percent of the business. That's our business sale and acquisitions space.

[00:21:39] Once I niched into that, it's almost like I saw this much broader range of businesses because there's a lot of businesses out there that don't need a lot of intensive legal help along the way in their business. But then they do need it at sale or when they're buying, right? And so I think that broadened my eyes at that point, just to the breadth of businesses.

[00:22:03] But, I've been niched in the area for quite a while now. So I think I've become a bit, what's the word? It's almost like nothing surprises me anymore. Oh yeah. Right. Yeah. If you're making money out of it, sure. We can sell it. Let's find a way. 

[00:22:15] Yeah. The weird and the wonderful, but, yeah. That's a fabulous thing about, entrepreneurs and small businesses. It's just like, if you can dream it, you can try it and quite often you can sell it too.

[00:22:27] Although it's an interesting statistic. It's probably the same for you guys. And I saw this statistic last week that the latest version of it that, in Australia in the next five years, 70 percent of businesses are due to have a change of ownership because of the age of the owners. Nearing this retirement age.

[00:22:47] And it's a fascinating concept because, it's hard to find statistics in Australia on the number of small businesses that don't sell. That just have to close the doors because they've not got a saleable asset. And, anecdotally, it seems like of micro businesses. So that sort of businesses with maybe one or two staff or under sort of under that 600, 000 to a million threshold here in Australia.

[00:23:15] Then,anecdotally about 60 percent of those on the market ultimately don't sell. And, the reason for that is probably, and I think usually because they've not found a way to create their asset as a transferable asset. It's that sort of whole story about the business being so reliant on the owner. Which is a buyer, who wants to come in and pay for something if you can't extract that value out of it.

[00:23:41] But it's, the statistics and the statistics have said for a long time that we're approaching this cliff of, this massive wave of businesses on the market. But we haven't seen that transpire in reality. Until I believe we're now at the beginning of that cusp and we're starting to see that ramp up.

[00:24:03] So I think that means that there's a lot of, perhaps a scary place for sellers. If people are looking to sell in the next 5 to 10 years, then you should be either a understanding what creates value at sale and making those small changes to your decisions along the way so that you can build a business that ultimately someone wants to pay money for at the end of the day. Or taking money off the table and not needing the sale of your business by the end of that point. But I guess on the flip side sort of talking to people who are buyers.

[00:24:36] I think that also means that there's real opportunity in the market and lots of opportunity coming on in the market. But it's an interesting space. I hear lots of people talking, in your market about this opportunity of the no money down. 

[00:24:50] And I don't know if that's, if you have many people talking on the podcast about the whole like no money down thing. Which is quite a difficult thing to achieve here in Australia. Because as far as I understand the concept of the no money down concept, it's like you want to buy a business that has a management in place that's earning money.

[00:25:11] That's not really a turnaround, but you don't need to spend money on buying. Well, those businesses here in Australia have no trouble finding a buyer, right? There's loads of people who are happy to put money down. And it's a real issue for buyers coming in thinking that they can drive those deals when there's a hell of a lot of other buyers in the marketplace who will pay for them. But, who knows what the future holds.

[00:25:37] Ronald Skelton: So I think that, that term is overhyped and oversold. And I've, in the process of learning this space, I paid for some of the mentors out there. Some out of Europe, some out of the United States. I have an MBA in marketing, but I just didn't know anything about the M& A space. They didn't teach me.

[00:25:54] When I went to my master's degree, they didn't say, here's how you buy a company. So I thought I've got to learn, I want to learn this. I bought one small one and like I did it wrong. And it's like, I gotta go learn this. I'm going to go do this. So I paid somebody to teach me. It's like a cool, I learned something cool there.

[00:26:07] I still have questions. So there's another guy and he's teaching no money down deals. And I was like, okay, I'm interested. We got money. We can raise money. That's not necessary for us, but if I don't have to use it and I could buy it, I'd like to see that. So it's sold as no money down. And what they don't tell you is the owner often gets money down.

[00:26:25] It's the strategy of, it's one of the guys I won't say his name. You get into the course and you realize there's about 216, 16 or 220 different ways to fund the transaction. And you use combinations of that to where it doesn't come out of your pocket. Sometimes it's invest, other investors money. Sometimes it's going in and doing a deferred down payment where you promise to give them their money down in their first 90 days and then you liquidate, Inventory they are holding onto for no reason.

[00:26:52] A lot of times these businesses have tons of inventory that's outdated and just needs to be auctioned off. So you start, you basically do that. You can do factoring on invoices. You can do, there's just a million, I don't know, there's 200 plus things. If they own real estate, a lot of times you do a sell lease back on the, on the real estate with an option to buy it back.

[00:27:11] So you might sell the real estate to an investment, a REIT. Real estate investment trust. For a 15 or 20 year lease with the option to buy it back at the end of that period. So now you've got, a chunk of cash to, to have operating expenses and to, a lot of times they'll give you a premium on it.

[00:27:29] If the business is profitable. It's a combination of what market value and what the business can afford is rent. So a lot of times these, sell lease backs are above standard market rates when they do the acquisition. Some of them don't offer a buyback period. Just for you got to really watch that.

[00:27:43] If you want to end up 20 years from now owning the real estate again. Some of them won't ever sell it back to you. But, like I said, there's a bunch of different ways and they pitch it as no money down. And what it really is no money out of your pocket, but you're going to have to get real creative on getting that owner some money somehow, right?

[00:27:58] Sometimes it's seller finance, 40 percent of it. You got an investor, that'll come in for some of it. And then, one of the deals they were talking about on the show was, they did a considerable amount of business with one of the local retailers. I'll put it in the class of Home Depot, Lowe's, those type of things.

[00:28:14] And when they heard the business was selling, like they did tens of millions of dollars of transaction with them. That company reached out and said, look, we'll, if you promise to do business with the next two or three years, we'll do this. And it was a multimillion dollar transaction where they basically, bought into the company for two or three million dollars and they use that for part of the purchase.

[00:28:33] So there's just, it's hyped up and sold as no money down, but that's not the true case. And I did a bit of article in this one, too. Even if you can pull it off, you understand that people have to understand that when you buy something a hundred percent financed by debt, they have to be able to cover the debt.

[00:28:52] So it would have to be an extremely healthy business with huge profit margins, in order to do it totally, you no money down because now you've got that debt coverage, right? You got to be able to, if you do a sales lease back on the real estate, you got to be able to pay that lease. If you do a private loan or a private lender, now you got to pay either pay them back or give them equity the company so they get a chunk of it. All this other stuff comes in it takes away from that, the true value of it. Yeah, it can be done.

[00:29:17] Joanna Oakey: And I think the opportunity for that when you've already got a business is probably a lot easier than when you don't have one to begin with.

[00:29:25] In many instances, your first acquisition will be your biggest risk. But it's also your trial baby. So you just, you have to be a little bit careful about, in many instances, it probably makes sense for the first to be, to keep it as simple as possible because there'll be a lot of things you're learning along the way.

[00:29:43] But I like this concept. The different ways of looking at things. I'm huge into innovation. Innovation into the way that we deal with the market. I'm always on the lookout for things like this so that we can help come up with innovative solutions to get deals done. But it's just that I think that headline message, no money down, is the thing that some buyers just grab onto without that, the depth of the other stuff that you're talking about.

[00:30:10] And it's about just being once again, seeing the deal from the side of the seller. And that's sort of what is forgotten by some buyers who just have this mentality of this message that sits in their head. And they forget that they've got to structure it in a way that makes it palatable and attractive to a seller. Unless the seller's in distress, just needs to get rid of the asset.

[00:30:34] But the reality is the number of times that happens with the good business is far less than obviously the opportunity that is in the market to buy, to buy a good business in a more simple way. Perhaps even particularly for your first one. 

[00:30:51] Ronald Skelton: Absolutely. And, there's two things here I want to say about the whole thing.

[00:30:54] One is a lot of what you're seeing on that realm is the laziness of the buyers. They hear these courses few in that you can do no money down deals. So when they go out and they talk to, they start going through BizBuySell or some other website and they start making offers in a hundred percent, they want a hundred percent owner financing. And that's not a no money down deal.

[00:31:11] That's not what these guys are selling, but they've never taken the course. I don't know the other, like that's one of 200 and something strategies. They don't know the other strategies. And most of those strategies are intended to give that owner. A substantial amount of cash at close or within a few, within 30 to 60, as late as 90 days of closing. They're getting some substantial portion of their equity. Usually 40, 50, 60 percent of the purchase price, right?

[00:31:38] They just don't, they see the title, the marketing hype, and they think they're just going to figure it out on their own. And they go try to like, I want a hundred percent owner financing. Yeah, that's not going to happen. The second thing, I'll give you a prediction. The prediction is it'll be a lot more of those hundred percent financing in the next five to 10 years.

[00:31:53] And the reason is if you start looking, because of the influx of these businesses, there's already one market. So we're having the same problem you're having. I think ours is in the next five to 10 years. It's even bad that I think they said 51 percent of our entire workforce in the United States are employed by a business owner over the age of 65.

[00:32:10] So you're talking about a 50 percent job loss if those companies don't change hands. It's already, so the one country that's ahead of us is Japan. And it's already so bad in Japan right now that in Japan it's very common for a multi million dollar business to give their business away to a safe pair of hands with somebody else.

[00:32:28] Businesses are being given to the next generation to protect legacy, brand and the employees. They've got a different sense of loyalty and they've got a different sense of importance of keeping the those, because they don't switch jobs like we do. A lot of their employees have been in there for the entire, since the day one.

[00:32:43] They've been employee in Japan since, for 30 years, 40 years. And to protect those guys, a lot of those businesses, there's articles right now over and over again that businesses are just absolutely changing hands for zero down because the owner, there's not enough buyers and the owners just really want to safe a pair of hands to hand that to.

[00:33:00] So they're more interested in, handing it over and that's where we're going to end up if we don't get more educated buyers. More people trained on this and more people understand, and this is a real path to wealth creation. It's supply and demand. As the supply goes up and there's not enough buyers around, something has to happen to those businesses.

[00:33:18] Joanna Oakey: Yeah, I completely agree, but it is, it's supply and demand 100%, but there's another element to it all. Which is, I feel, from a general business perspective that every business that doesn't sell is a loss in the market. It's a lost opportunity, because someone has created some value somewhere. And if you haven't created that way that can be transferred to someone else.

[00:33:43] And you're just closing the doors, then I just feel that's a loss of opportunity. So, I think there's a lot of, and it's a conundrum. I don't know the answer right now. I mean, I've got loads of answers. I know what makes a business far more saleable. And the answer to that is that you create something where the value can be transferred and the value isn't completely dependent on you as an owner. That's one of the fundamentals. And there's a few other fundamentals, which I talk about in my book, Buy, Grow, Exit. 

[00:34:12] Ronald Skelton: We're going to go into that here in just a second. 

[00:34:13] Joanna Oakey: But, I just think, it's something I've been reflecting on quite a bit recently. And even more particularly, as I say, the statistics aren't new, but just each time they come out, it just re, reminds me of this. And as I said, I love innovation and I love this whole thought process. How do we, like, let's just not be, how do we make a difference?

[00:34:36] How do we make a change? And I think that opportunity for a change is that, that little piece of knowledge for business owners as they're gearing up to sell. What are the small changes I make along the way to make this something that can transfer to someone else from a buyer? It's how do I see that opportunity.

[00:34:55] How can I turn those opportunities into something that can be transferred to me as value? And that sort of, that's the opportunity on both sides that will just become more accentuated as we get to this cliff of, business transfer. 

[00:35:09] Ronald Skelton: Absolutely. I totally agree with that. And, inside of this dynamics, a lot of people don't understand that, I hate to say this, not every entrepreneur should own a business.

[00:35:19] Not every entrepreneur should be buying a business. If you ever watch how the VCs operate, it's a great model. Venture capitalists, somebody who founds a company that it takes it usually, if you really watch what, on the grand scale of things, you watch what happens, is there's, It takes one person to be able to come up with an idea, create it, and turn it into a product and then show it to the market.

[00:35:40] And usually get it in front of somebody. Get raise money. All the aspects it takes to get it to that point where here's something I think we can sell. Usually it's a different person that can take that, perfect it and scale it between, say a few hundred thousand dollars and say five or ten million dollars. And if you watch the VCs and a lot of stuff that the CEOs change throughout this process. The guy raising the funds and the guy getting the idea and the guy getting the product, you know done, tends to be the different guy that, they hit the million dollars in revenue and they're trying to get to 10 million dollars. 

[00:36:11] Ends up being, sometimes they switch right there. And then usually there's another switch between 10 million and, a hundred million, and they're trying to go public, there's another CEO that comes in. And it's usually because, it takes a different set of skills to be a visionary, come up with a new idea and work the long hours and get something, get the gears turning, get something made. That it does to say, okay, market kind of likes it, but they need X, Y, and Z done to it.

[00:36:35] Let's make those changes. And then let's take it to scale. Let's open different channels and different sales, different sales teams and all the different stuff it takes to, to do scale. It's a different person. And so not all entrepreneurs, not everybody graduating with an MBA should run out and buy a business.

[00:36:51] Joanna Oakey: And you know, that's a really good point because there is risk in business acquisition. And quite often people who, who are acquiring businesses, there's sort of two ways you can approach. If you want to get into business, there's a couple of ways you can approach it.

[00:37:04] You can either start a business from scratch or you can buy a business. And I love, of course, I'm in the business sale industry. So of course I'm going to say this, I just think there's so much opportunity in that buying a product that or a service that has already proven. That it has a connection to the market.

[00:37:22] It's something that sells their systems and processes. You jump in, you making money from day dot. So I think it makes absolute sense that, You're buying a business rather than starting from the ground up. Oh, and the other way that you can do it is buying into a business.

[00:37:35] So buying into a business that's already existing. So buying shares or whatever the case may be with others. And, but of course the issues that you have with that is you have to ensure that you understand what that relationship is going to look like. And, in my experience, there's a lot of business relationships that look like they're going to be fabulous from the beginning.

[00:37:55] Don't turn out that way. So that's fine. If you're going to do that, make sure you've got a strong shareholders agreement and really clear exit. But if you're buying a business, there's so many reasons why that is the good option out of the three, but you just have to be careful that you're buying the right business that matches you at the right time of where you are in your business understanding. 

[00:38:18] And I just think that's a critical element. But there's one other element of acquisitions. And that's, you already got an existing business and using acquisitions to grow. And I think this, that is the dynamite opportunity for SMEs. And is that the terminology there for you guys, SMEs?

[00:38:38] Ronald Skelton: So we use, we use, so small medium business, SMB. Usually, if you ask, something like the small business administration, what a small medium business is, they'll tell you under 500 million in revenue. Or 500 employees.

[00:38:52] The SMB or this, we call it main street businesses. We kind of branched our own little name out. For mainstream business to us is 20 million in revenue or 20 million in asset value to, to acquire or below. And that's the realm most of us play in. 

[00:39:05] And the reason my audience anyway and myself and people I know, the reason we play in that realm is it's right below the PE's radar on most of these, and the private equity and strategic buyers radar. And our goal is to do exactly what your books says. We buy it, we grow it and make it appealing to the guys at the next level.

[00:39:21] Because you can buy these smaller companies, these five, $10 million asset, purchase companies for, two X, three X, sometimes four X and turn around. And if you get it to the PE level, it's not uncommon to get six, eight or 10 X. So there's an arbitrage of scale too. 

[00:39:37] So you hit a certain thing, it's not just, okay, I grow it. And then I make a little bit more money. You get past that. If you can get it past and into the eyes of the next level up, the number changes by multiples. 

[00:39:48] Joanna Oakey: Exactly. And I actually talk about that a lot in my book, in the buy section, cause it's about buying, but I just like, as I said to you before, I'm always on the lookout for the opportunity.

[00:39:59] Where's the opportunity? Where's the opportunity on the market for our small to medium sized businesses? Our SMBs for you guys, SMEs from our side to, to really do something a bit different. And I just think that acquisition is a far, faster and quite often safer path to growth than organic. And I just here in Australia, at least that is, it's just an opportunity that hasn't been fully recognized.

[00:40:25] Of course, we deal with lots of clients who recognize it, but I just mean in the broader, in the broader small business community, it hasn't been recognized. I just think so much opportunity and I just find it immensely exciting to be able to see this opportunity. And, I just think more businesses should jump on the bandwagon and give it a go, you know?

[00:40:48] Ronald Skelton: Awesome. Awesome. Let's cover the book. I mean, we got some time here. We'll make the show a little longer if we need to. I think there's a reason why you wrote a book. All right. And, let's talk about why, there's a few good books out. There's probably a, maybe a dozen, two dozen good books.

[00:41:02] There's lots of books out. There's probably a dozen or two good, two dozen good books on mergers and acquisitions of small to medium businesses. Why put yourself out, there's a lot of work to write a book. Like, okay, I've got to write this, I've got to tell my story, there's a reason why you wrote it. So what's the reason why?

[00:41:18] Joanna Oakey: Yeah. Do you know, I just feel like I've seen so many stories. I've seen so many stories of, 'cause I see businesses at Exit, right? Whether it's buy side or sell side. I see I've seen hundreds, probably thousands, right? So I see the businesses that have these spectacular exits where these owners are just like, over the moon and they're the best deals. 

[00:41:41] And and I'm someone that just keeps in contact with people because I love to hear the stories. And I've got this, this client that I work with maybe 12 to 15 years ago. And I just, I still keep in contact with him today. He had a spectacular exit.

[00:41:55] Everysix months or so I'm like, okay, where are you traveling now? Tell me what retirement looks like. And it's just like, that juices me. But then I see the other side, I see that body of businesses that don't sell. I see the people who find a buyer, they come to us, we start on a transaction, the buyer falls out for whatever reason.

[00:42:14] Sometimes cause they've thought they're going to buy it, no money down, and they actually mean no money at all. But it, but they fall through and, and sometimes these business owners shut the door on good businesses or not so good businesses, but businesses that, that they've been building for all of this period of time. Then there's those sellers who come in and, I'll talk to them as they're preparing for exit. And they'll say something like, this is what I need the sale price to be, and that is always a red flag.

[00:42:45] To me for someone who doesn't understand the market when they're talking about what they need. Because of course, our market is never about what someone needs to sell something for. It's what someone will pay. So I saw all of those stories. And I saw the clear differences that were decisions that were made along the way and not even, quite often not conscious decisions, not hard decisions, but just micro decisions along the way that made the difference between something that is an incredible saleable asset versus something that has no buyer. Or indeed where business owners have blown their business up on the way of growth, because growth is actually one of the most vulnerable stages of a business.

[00:43:26] So all of these, and I'm just like, Oh, I just, and I've got a podcast. I've got two podcasts, but, one is called talking law, where I talk about tips and tracks in law for, small business owners. And then the other is called the deal room podcast, where I talk all about buying and selling businesses.

[00:43:43] And between them, I've got about 480 episodes now. And so I felt like I talked a lot about it, but all of that information was, really disparate. It was like, spread between these, you know, 480 episodes. And lots of people kept saying, you've got to write a book. And I was like, do you know what?

[00:44:01] Yeah. Like, why don't I just take this? It's not going to be that hard. I don't mind hard work. I'm just going to sit down and do it. Well, it was bloody hard work. But do you know what? I loved it. I loved that process of, of remembering all those stories. All those things that I saw what were brilliant outcomes. All those things that I saw were reminders of the landmines along the way and reminders of the way not to do things.

[00:44:26] And, I loved it. I think it created something that actually I'd not even got, even after all of those hundreds of podcast episodes. Not fully gotten out of my head, until I sat down and wrote the book. And so it's divided into three parts. Buy, Grow and Exit. See if you can work out what I talk about in each of the three parts. 

[00:44:49] Ronald Skelton: Give us a clip, let me say, give us a cliff notes. What are the key takeaways on the buy section or one or two of the key takeaways? So do that for each one of those. 

[00:44:57] Joanna Oakey: Okay. So buy side, the first thing out of the buy side is I just wanted to, implant this seed of knowledge of this i, this idea for small businesses of the opportunity and acquisition.

[00:45:10] So acquisition for, an acquisition, entrepreneurship. Acquisition instead of, instead of starting a business from ground up. Acquisition for growth of a business. That's the seed. And so I talk a bit about that from a, a perspective of like the idea of it all and why it makes sense for each of these different segments of the market.

[00:45:33] But then I also talk about the fact that there's this, there's this statistic that rolls around in the market that 70 percent of acquisitions fail. And why fail? What the statistic actually means? And it comes from a McKinsey report initially, in large business acquisition. But I think the concepts are transferable to the small business market.

[00:45:54] And the idea is that failure means a failure to meet the idea or the objectives for what that acquisition was meant to achieve. And so it doesn't mean that it was an epic failure or whatever, but it just means that the idea behind the reason for the acquisition didn't make the KPIs or the idea behind it.

[00:46:14] But in some instances acquisitions can lead to epic failures. Where people put money down or don't put money down but put time down and they have something that doesn't meet what their ideals have been and what they wanted from that experience. And so I wanted to plant the idea of here's, here's the reasons it's so epic, but here's the potential pitfalls along the way, and here's how to avoid it.

[00:46:39] And avoiding the pitfalls is about preparation, ultimately. And it's about education. So preparation, education, and I sort of talk about due diligence and, what that all means. So that's the buy side. And then the grow side is, and I see it as a cycle, right? I see it as, buy isn't necessarily in the beginning.

[00:46:59] You might already have a business and then you need to secure it and protect it through its period of growth. And then you might go and buy again. As part of that growth, and then you need to protect it. And then you do that again. And then, but you're always building with exit in mind. And the idea is that in every stage of the business, you have awareness and understanding of the other stages. 

[00:47:21] So that you are clever, and precise in the decisions that you're making along the way that sometimes you might otherwise have been not consciously making. So in grow, as I say growth is the most vulnerable period of a business. It absolutely is. And I have seen so many businesses implode. Because the legal infrastructure in their business and other infrastructure in their business doesn't match the size that they've become.

[00:47:50] And so grow is all about, what are those landmines in growth? And how do you avoid them? And there's some simple, simple steps. Simple, but not easy necessarily steps along the way that you put, you use to put that infrastructure in place. And, a quick tip, it's not just going out and downloading a whole heap of legal templates.

[00:48:14] Because the contracts are one thing, but they are not what ultimately saves a business. It's the interaction of contracts, systems and processes and training, education, understanding in the business. That is the real sort of protection, for your, the asset that's your business.

[00:48:34] And then we've got exit and in exit, once again, it's all about preparation and early understanding of what a buyer is going to be looking for and how that value transfers and how a buyer comes in and doesn't say, A, the risk that the value won't transfer. And B, risk that there's a landmine in the business that's going to blow up in their face.

[00:48:54] Ronald Skelton: Sounds like an amazing book. So how do we find it? I know where I could find it. But, where do you want people to go to, to find the book? 

[00:49:00] Joanna Oakey: well, if you're in Australia, go to buygrowexit. com. au and we'll actually, we'll make sure we have a link through there. We'll provide you with a link. I don't know if you do show notes. We'll put a link in your show notes, if you've got them, to wherever we're directing people. Cause I'm not even a hundred percent sure, where we should direct all your listeners.

[00:49:17] So we've got a buy grow exit page and we're also on Amazon. So we're on there so you can get yourself a Kindle version or whatever. Or if you're in Australia, you can get a printed version.

[00:49:27] I think you can get a printed version overseas as well too, but I'm not a hundred percent sure how all of that works. We'll provide, our team will provide you with all the information so you can put a link in your show notes. How about that? 

[00:49:38] Ronald Skelton: It's in the notes they provided for me. Whoever filled out your intake form, I have the notes to the, buygrowexit.com.au , for that.

[00:49:48] And then, if somebody wants to reach out to you, ask you a question and work with you, what's the best way for somebody to reach out to you? 

[00:49:53] Joanna Oakey: Yeah, absolutely. So head over to our website at aspectlegal. com. au. That's A S P E C T, aspect, like a different aspect on your business, aspectlegal. com. au. And we've got like a little, just you can book in a call there, or you can send, you can use it to send a web inquiry form.

[00:50:15] Or hit me up on LinkedIn. I'm on LinkedIn, Joanna Oakey. I don't think there's many of me. Although my, actually my auntie's name is also Joanna Oakey. So anyway, whatever, you'll get me on my auntie, one or the other. So hit me up on LinkedIn. And if you're interested, jump over to my podcast too.

[00:50:31] Ronald Skelton: Awesome. Yeah, definitely want to, and what's the name of that for people to, to find it on Apple or podcasts or Spotify? 

[00:50:37] Joanna Oakey: Apple, Spotify or your favorite podcast player. It's the deal room podcast with Joanna Oakey, who is me. 

[00:50:45] Ronald Skelton: Awesome. And it's a great one. I listened to some of the episodes too.

[00:50:49] So I appreciate having you here today. I think we did a great job. What's one key takeaway, if somebody can remember only one or two things from the show, what would you want them to walk away, thinking about you and what you do? 

[00:50:59] Joanna Oakey: Oh, me and what I do. Look, I don't think it's about me. I think the takeaway is about the opportunity in the market. There's so much opportunity. Listening to stuff like this podcast, getting yourself educated. That these are the best things that you can be doing. And you know what, just give it a shot. Just go for it.

[00:51:19] Don't go for it in a protected way. Don't expose yourself too much, but I'm a huge one for, fail forward. Fail fast, fail a lot so you can get to that, the right place. I think as a call out to people who are listening on your show, and maybe you've been serial listeners, but not taken action. Just do it.

[00:51:39] Go take action, but in a protected way. That's my takeaway. Yeah.

[00:51:45] Ronald Skelton: Some of my best lessons were my biggest failures. You don't send a stick with you and you don't do that again. 

[00:51:50] Joanna Oakey: And don't take it too serious. Life is fun. Keep it fun and keep remembering it's a game. It's just all a game. You're having fun and don't get too serious. 

[00:52:00] Ronald Skelton: Awesome. Well, I had a blast chatting with you. We'll call that a show then. 

[00:52:03] Joanna Oakey: I love it. Thank you so much for having me on. I just, I loved it.