Marty M. Fahncke (Pronounced Fawn-Key) had his first business exit experience over 20 years ago when a business he launched with a couple of friends was acquired for 7 figures after just 18 months in business. This resulted in Marty having a...
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Ronald Skelton 0:06
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling
Hello, and welcome to the how to exit podcast today I'm here with Marty Fahncke. Marty had his first business exit over 20 years ago, when a business he launched with a couple of friends was acquired for seven figures after just 18 months in business. This resulted in Marty having a completely skewed perception of what it takes to sell a business. He thought every business owner had a had people knocking on the door wanting to throw wads of cash at them. 20 years later, Marty has helped businesses scale to over a billion in revenue, and executed over 400 million in mergers and acquisitions. He and his partners are actively acquiring businesses in a variety of verticals including e commerce, consumer goods, health and wellness agencies software as a service and more. He's also an mergers and acquisitions advisor helping business owners on the both the buy side and sell side helping and helping companies execute a growth through acquisition strategy. After dozens of transactions he knows now the buying and selling a business can be frustrating, stressful, and time consuming. But it also can be rewarding fun and of course lucrative. Welcome, Marty. And thanks you for being on my show today.
Marty Fahncke 1:43
Oh, thank you so much. I'm really, really honored to be here.
Ronald Skelton 1:49
This is one of the funniest things I do throughout the week, just talking to people are in this space, learning kind of where you come from and what got you into the space. And then you know, the whole one of the whole reasons I do the show is I want to learn from your lessons, right? I don't want to there's a lot of lessons you've done. If you've done in $400 million of deals, there's things that you've come across and seen that I probably don't want to encounter on my own. So I go, right, I learned through other people's trials and errors. And hopefully, when when something like that comes into my space, I know what to do with it. So let's just start with kind of how did you get into the space in the mergers and acquisitions? And you know, start there?
Marty Fahncke 2:28
Yeah, absolutely. So you touched on it a little bit there with, with my my first foray into that, which was I had, I had no idea what mergers and acquisitions was I had no intention of starting a business and selling it. It was really just me and a couple of buddies had started a business we were quite successful. But really it was it was literally a grassroots business. It was something we were doing on weekends, and then it exploded. And we got the product on QVC. And we started doing millions of dollars in sales. And then we got it in Japan. And then we got it in Brazil. And it just in very short order became a really great business. And a company came and offered us a wad of cash. And we were like, Okay, I mean, it was literally a side gig. So, you know, at that point, I became involved in the world of mergers and acquisitions, I had no idea I was I just thought I sold my business and made some nice money. But it was a couple of years later, I was working for a large company, and I was starting an entirely new division. And they were on a fast track of growth. And we were competing with this other company that was just out marketing and out promoting my team. And it was really frustrating because I normally am, I like to be the best straight the best out there. So we were we were kind of getting outplayed a couple places, and I was sitting with my CEO. And I was kind of explaining what was going on. And I you know, I said I wish we could just hire these guys. And he goes, Well, why don't you just go buy them? And I said, what what do you mean? He goes, Well, if they're if they're that good, let's go buy them. Okay, that's interesting thought and everyone thought about it. So I actually reached out to him. And these are, you know, these were essentially sort of competitors. They were, let's call them cooperators. They were they were, in some ways related to the business and other ways competitive to the business. So I reached out and I said, Hey, would you guys be interested in selling your company? And they're like, Sure. So we, we began conversations, and within about four months, we had acquired the company and all those guys worked for me. And then I learned about the concept of aqua hire, and I learned about the concept of, of, you know, growing through acquisition, and not just organically until that time, I had been very successful growing many, many businesses to you know, hundreds of millions of dollars, but all of it through sales and marketing. And it was at that moment I went, Oh, there's another way to grow a business. There's another way to add revenue. There's another way to add price Profit. And that is just to acquire it and plug it in. And that's when the light bulb really went off. And so that really kind of began my my career we wound up doing just under $300 million in acquisitions total been built that to an enterprise value of $600 million. And, and then we went public and it was a very, it was a very fun ride, I must admit was a very fun ride. And today I'm doing some of the same types of things and helping other companies grow through acquisition and understand that strategy and understand that, oh, by the way, we bought that business for I believe that transaction was about $3 million. And I think the total cash outlay was about 300,000. And we leveraged the rest and some creative financing. So it gets to be a topic we may talk about later, which is you don't have to have a huge war chest of cash in the bank to go and acquire businesses and grow your current business. But we can talk about that later if you want.
Ronald Skelton 5:59
Yeah, that's absolutely one of the things we should talk about as some of the misconceptions in the marketplace. Yeah. So you know, through this process you kind of stumbled into and it's funny, as most business owners I talked to, a lot of business owners stumbled into being a business, you stumbled into mergers and acquisitions to some extent, just because your first business had a successful exit, or that or the one that you mentioned in the in earlier had a successful exit. And then you went to work for a company who wanted to do some acquisition. So what is like one of the key takeaways, like there's gotta be something in that, like the whole process that you wish you would have known on day one, that you know, now, right, you got you, there's some knowledge you have now that meant on day one, if I had, this would have made a huge difference.
Unknown Speaker 5:59
We need a four hour podcast so that there's a lot of things I wish I'd have known on day one. So I think just having the awareness of have mergers and acquisitions is not necessarily something just for the big guys on Wall Street. Mergers and Acquisitions can be a way that any business can grow their business, any successful business owner can expand their portfolio, expand their net worth, leverage their operations. You know, for example, a, let's say a manufacturer has a manufacturing line, and they currently are at, you know, 60% capacity. And they have they have the ability to manufacture more, but they can't sell any more widgets, and they're already manufacturing. So they're sitting there with inefficient manufacturing, well, what if you acquire a business that is also selling a widget that similar and now you can fill that capacity and now you've made your core business much more efficient, by adding in other business that you may acquire. And so really, it's just the open mindedness of, you know, like, when I was really transactions was, Oh, these guys are these guys are out, out, you know, out bidding me and Google and they're doing this and they're doing that and they're trying this and try that and you know, they're frankly out, meet my team and then see us, then just buy them. That's huge. That's a huge, it was a simple thing for him to say to me. And it was it was a turned out to be a very lucrative activity for us to execute. But most business owners would never think of that you think of oh, how do we market more? How do we sell more? How do we get more customers? How do we organically grow the business? You know, how do we how do we defeat the competition? How do we outsmart them? And very rarely do people think of how can we just buy them, let's buy their brilliance? Let's buy what they know, and bring it into our business and partner up and go out and conquer the world. And that's really to me the biggest thing is just having that open mind to this is a possibility. And a possibly few business owners ever really think about
Ronald Skelton 8:55
You know it's interesting is we've all heard of acquiring a business Mergers Acquisitions. In the last few years, it's been very common like Google and the big companies have been doing Aqua hire for a long time just acquiring a company for the talent pool. I knew what came up for me the other day and I don't know if it's just we the guy made it up when he called me but he asked me if I ever heard anybody trying to Aqua retire and I was like What do you mean? He says he doesn't want to step totally away from his business. But he's ready to like go down to 510 hours a week Oh, okay. He's wanting to acquire one of his competitors is pretty much like he said is run better they they use the OS they use a bunch of this stuff well oiled machine way better than what he thinks his is okay with the hopes that he's going to step back and be an advisory kind of a board member and let them other management team he acquired run the whole show, and that was a really unique I was like, Wait a second, that's something that could be done for a lot of these baby boomers are wanting to retire. They still want to come in and you know, set their desk 10 hours a week and do some things but they don't necessarily they don't want to walk totally away. But they're also ready to, to back down and know what the succession plan is. Yeah. So I'm looking into that a little bit, have you heard it, you've heard of that. Or if you've seen people,
Marty Fahncke 10:13
Well, that's, that's a next level up from what I normally hear. So in even what I normally advise, because I work, you know, I get calls all day long from people wanting to buy and sell businesses. And so one of the things that another thing that's like people have a misconception about or they don't think about is, they think that if I sell my business, I have to sell my business, right? Like you can't like they think of it like real estate, right? If you have a house, you have to either buy a house or sell a house, but you can't buy it, you can't sell part of your house, right? Well, with a business you can and so I have actually helped some owners with their, which, with permission, I'm going to ask you to steal this phrase of "acretire because it's fantastic.
Ronald Skelton 10:54
I've never, I love to go for it. And I think I should clean it and use it all over the industry. So
Marty Fahncke 10:58
So one of the things that that I've helped people do is they don't necessarily want to walk away completely from their business. But they've hit a point in their life where they do want to back off, they don't want to work 60 hours a week, or 40 hours a week, or they don't maybe they just want to work 20 hours a week, they don't want to be completely not involved with the business. Well guess what that makes a perfect retained equity deal, where I'll have somebody else's, they don't necessarily want to, they want to have a business, that's minimal risk, right? If the if the current owner is staying on, and you're a new buyer, your risk is much lower. If you have their intellectual property, that's the steal there you have their their expertise, their network, their connections, et cetera. And so for an owner to sell 80% of their business, or 70% of their business or 90% of their business step away, they it allows them to double dip on the on the returns as well. So let's say an owner has a business that they've been running and it's worth a million dollars. And they sell it for a million dollars today. And they walk away with that cash in their pocket. Wonderful. But what happens if they do an aqua retire like you talked about, and they sell it to somebody who's got a an intense growth mindset. So they sell the business, let's say they sell 80% of it for $800,000. They've got a nice nest egg in their bank, they've got money for retirement, they can travel, they can play, but they stay involved in the business. And that business owner comes along and doubles the business to $2 million valuation. Well, a couple years down the road, what is that retained earnings now that's worth 400,000 instead of the 200,000 that they would have gotten by by selling it all at once. So I like that retained equity, retained earnings or retained equity aspect for you know, sort of semi retirement. Now your your call that you got from the other day was somebody who's wanting to go acquire a business and then retire. It's an interesting concept. I wonder how effective that is. Because it's a lot of work to acquire a business and integrate it and get your feet underneath you and help to grow it. So it's a cool strategy. I've not seen that. I I'd like to I'd love to follow up with you and hear how this this person did. Because that's a very interesting trait. But as far as like, you know, Aqua retire, that is absolutely something that I've seen many times and in the units, it's oftentimes something that I've counseled somebody who calls and, and I realized they're not ready to completely let go of the business. But they do want to step out of the day to day operations. So it's a great strategy.
Ronald Skelton 13:29
Yeah. And I'm a big believer in leaving some on the table for the previous owner for all the reasons you mentioned. Right? Like, there are some like if company has been around for 30, 40, 50 years, there are some clients that are going to call in demand to talk to that owner. Exactly. Right. And usually, I think you can get around that most of the time. But if something's bad, like, you know, you made a mistake or like price changes because of the industry and they want to talk to that original guy. It's great to have them there to like, Okay, well, we can we can line that up. Yeah. So in that particular case where the guy wants to do the Aqua retire and he wants to buy another business, he already has kind of friends with his competitor. He knows how well it's wrong. They were in like a young entrepreneur thing. One of the EO Now they call it together. They compete and one other that's weird is it compete on a couple lines of products, but they supply each other parts for others?
Marty Fahncke 14:24
cooperators good, right? Cooperation. Yep. And that's a great strategy.
Ronald Skelton 14:29
And the other guy already has any an employee stock option plan. So that was part of the reason why he was required. The other guy introduces employee stock options, so his employees, get a piece of it. And you know, the other guy that's going to act as a CEO. You know, I don't even know if I'm gonna get involved in the deal. He kind of just called me and said, Is this totally insane? Can this be pulled off? I said, it's a business. It's you could structure it any way you want to. Right? And I told him, I'm still in the phrase. I've never heard anybody use that phrase. I'm still in it. I'm gonna use it everywhere I go. Now. As Aqua retires to go viral. Yeah. So he's like, Alright, that's it. Same thing you said to me is like I told him, sorry, if I'm gonna be using that now. But yeah, his is a unique case in the fact that, you know, he's going to he's wanting he's wanting to acquire a smaller company, that's better run. So that management strategies and that management mentality can help run his and he can step by step back. So I'll step in and help if he needs to help on that particular case, but I will follow up with him. He just reached out to me because of a mutual friend and told him I was in the space and said, you know, wanted to know, he wanted to sanity meter from me before he started calling the attorney and telling them to line up the paperwork. Yeah, exactly. I was like, you know, I looked at it. So that sounds pretty cool. You should try it. Yeah. Let's jump right into the, what are some of the other like, big misconceptions out there? We already mentioned one, like, you just have to have a war chest of cash. Right?
Marty Fahncke 16:01
Yeah. So we can we can talk about that. So I get a lot of business owners who talked to me about Well, I'm not interested in selling my business, but I I'm interested in, in growing or, or usually what I hear is some day, some day, I'd like to acquire their businesses and grow my business through that. But and I always ask them, Well, why Sunday? Well, I, you know, the money, I don't have the money. And that's, I hear that so often that I appreciate you giving me that opportunity to kind of share this because it is a huge misconception that you need. People think oh, I, you know, I want to buy a $3 million company and I need $3 million in cash. Absolutely not. Absolutely not. Right. And especially in in the world we live in right now, which is, you know, early 2022. At the time of this recording, there is so much cash available to buy businesses, that's not your own. And, you know, whether it be revenue based financing, whether it be you know, hard money, whether it be the SBA, there are literally hundreds of options of how to buy a business, and put very little of your own money into it. And so we've advised lots of different companies who have, you know, seen they have a competitor they wanted to acquire or a vendor that they wanted to acquire some like that, and then oh, we wish we had it, say you have the money, trust me, you have the money. Whether it you know, we've done deals where we're no cash at all has changed hands and has been purely equity swaps, and you know, coming out doing, you know, doing $1, for dollar equity swaps. So if you're a business owner, and you have run up against a brick wall, and organically growing your business, and you've you've sold as much as you can sell, you're out of customers, like you know, your marketing dollars are not as effective as they used to be your Facebook budgets out of control. And you want to look to how you can grow, acquiring new books of business, acquiring new customers, acquiring new employees could be the way to go. And you don't need a huge bucket of cash to do it. And there are hundreds of ways to do it. And, and a good advisor can help you sort all that out.
Ronald Skelton 18:09
And it's way beyond just like, Okay, you're a million dollar company, and you acquire a million dollar company. And now you're a $2 million company, right? You doubled overnight. That's beautiful. But in most cases, there's some product differences. So you got to cross sell and upsell of each other. So where it's not one plus one equals two in most cases, right? Absolutely. One plus one equals two, three, or three and a half, right? If people don't get that they don't understand that, like, you know, and in most cases, you know, if when you start looking at that, it's even one plus one equals four, because you realize you don't have full penetration for your entire product line, when you start looking at like a cross sell these guys, it usually will open the eyes of the business owners going, Hey, most of my customers have products, one, two, and three. But, you know, we introduced products, four, five, and six months later, and they don't, I'm not even sure they know they exist, right? So when you're busy trying to cross sell and upsell that new company's products, you'll find that you know, you are going to take care of some of the gaps you missed out on your own.
Marty Fahncke 19:10
So when you're talking about all revenue and profit revenue stuff here, but there's also on the other side, there's overhead and profit, right? So if you have a million dollar company with 10 employees, and you buy a million dollar company with 10 employees, guess what, you probably don't need 20 employees to run your new $2 million company. So you now you have two options. So option one is you can reduce reduce overhead, which right now, there was a time when it wouldn't that would have been a nasty thing to say, Oh, you're gonna take over this company and fire people. Well guess what, most people most businesses, they can't hire. All the people they need. They need 20 people and they can only get 16 of them. If you if you get to that economy of scale, you know, that gives you that opportunity now to actually run the business more efficiently. You're not firing anybody. You're just leveraging the current marketplace, which is you can't find anybody to hire anyway. But the the other thing it does is let's say you buy your $1 million company with 10 employees and you buy another $1 million company with 10 employees. Now you have 20 employees, if you don't want to let anybody go and you're not having a hiring issue, like so many companies are, that economy of scale means you only need about 15 of those to do the core operations that you always did before. That gives you the other five to go and scale and maximize. Because one thing you always hear from employees, I'm overloaded, I'm doing three jobs I you know, I can't work anymore. Well, guess what if you can get that economy of scale with your existing infrastructure, and then use those extra employees to go do those special projects that you've been wanting to get to, to open that new market that you've been trying to get to execute that new execute, you know, a new EOS or operating system, from an operation standpoint, fix your accounting, there's all sorts of things that can be done, that can effectively gain a substantial amount of profit when you've got that those options with your staff. So it's a whole other reasons, not just increasing revenues, but increasing profits.
Ronald Skelton 21:07
So one of the one of the interesting things I'm seeing out in the marketplace is, and I've only been be honest, I've only been after this for about two years. Now, the interesting thing I'm seeing is that brokers out there don't necessarily close as many deals. I don't know what the statistics are, I think I've read somewhere it's like 80% of all the businesses listed by brokers never sell. I don't want to I don't know where that came from. So I know it's high. So what is your gut feel about sourcing that business? Like? How do they how do businesses Fine, fine, viable to
Marty Fahncke 21:46
get me in trouble? You're gonna get me in trouble, Ron, because I am going to talk about brokers and I, let me ask you this, if you if you see a business for sale, and you go, Oh, that's an interesting business. I may be interested in acquiring that. And then you see that it's listed with a broker, what do you do?
Ronald Skelton 22:02
I gotta get reaction, and most time I go the other way. But most
Marty Fahncke 22:05
things go the other way. And that's, that's the case with almost every successful person I know, who buys businesses or sells businesses. I've heard the same statistic I've heard is 80%. No sale I've heard is 90%. Don't so I don't know what the real statistics are. And, you know, I haven't bothered to look, I do know that. Brokers, for some reason, tend to be any of the transactions I've been involved with. Matter of fact, let me say this a different way. I have never closed the deal where a broker was involved, ever. And I've tried. I have tried
Ronald Skelton 22:44
a lot of hours working on deals with brokers involved. Yeah, I joke around and say that's one of the only job titles I've ever found. It's really well named. Like you work with a broker, you're probably going to be broker they started. So and I have friends that are brokers, I actually have a couple of friends that actually own brokerages and stuff. But uh,
Marty Fahncke 23:08
I don't know if you've done interviews with them. If you have I'd love to go find your archives. And listen, because I don't understand why brokers are such deal killers. My assumptions are a couple of things. So one is that the way brokers work is they get paid only when they sell something they and so they basically from what I've seen, and again, I don't, I don't want to offend anybody. I just You asked me the questions, I'm going to talk about what I believe. So what I believe is that brokers generally they get paid only when they sell something. And so they don't, they don't care, the list anything, they'll put anything up for sale, whether it's overpriced, whether it's a dog, it doesn't matter, if they just kind of like throw enough mud against the wall and hope something sticks and we get a commission. The other thing is that brokers get paid one way, and that is as a cash commission for a cash transaction. And so you only ever hear brokers pushing three ways of funding a business cash, SBA and seller financing. And I mentioned earlier in this podcast, I know of over 200 ways of funding a business. Well guess what, you can't fault you can't pay a commission or a broker, you're less likely to get a commission on a deal that's all equity funded or a deal that, you know where we're, well you know, we've had ones where we've had airplanes in the mix and you know, different things and swapping this and doing that and all sorts of crazy stuff. So I think that the reason brokers are such barriers to closing deals is because they only allowed transactions that fit within this narrow parameter of this is the kind of transaction where I can earn a commission. Again, I could be totally wrong but I would love to understand why broke Kurz, you know, are such barriers to closing deals. But I'm the same way when I see a business for selling, I'm interested in it as soon as I know, there's a broker involved, I get very much either back away or, you know, exercise an incredible amount of caution, I'm in the middle of a deal right now with a broker, where we're advising the seller. And the broker has brought a buyer for the business. And so I'm very intrigued to see if this is going to close the broker himself is very nice guy I like so far he has been the he's been much better as a person in communication, everything else and other brokers have dealt with, but we'll see if the deal actually closes. But, yeah, I don't understand why. But I will say if you're looking to buy a business, or you're looking to sell a business, I would highly advise not to use a broker per se, because of the terrible track record that appears to be out there.
Ronald Skelton 25:58
Yeah, I actually had a couple of investment banker and advisors on the podcast. And I asked one of the advisors, what's the difference between a broker and advisor and an investment banker? And his answer was absolutely brilliant. And the broker, you know, in his mind, the broker, finds a listing, puts it out on all the websites, waits for it to sell and doesn't do a lot of stuff. Most of the year advisors build a extra portfolio or a data room, a set of data to sell it, and then they actually look for who would be perfect acquisition partners who would be the perfect buyer. And then they reach out and actually, you know, cause a multiple bid scenario, because they reach out to multiple people that fit that criteria, it's an active instead of a passive campaign to sell the business. And then you know, the investment makers are the same thing that you as advisors on around the same thing, but they've got it, you know, they're, they're backed by an investment banking situation. One of the better brokers that I've had on the podcast was Iran. Sir Baca, he's from Australia. He's got one shop, and I think in Hawaii, and he's looking at doing it, been doing it for 18 years, but he's very direct and upfront of the valuation model, and not telling owners, you're going to get, you know, five or 6x, when, you know, the way it's, you know, if they ran perfectly, they get 3x. And the way they're currently running it, they're probably going to get two he just really the way he's closed quite a few hundreds of deals over the 18 years. But at the end, he's got a I think he you know, to his claim about an 80% close rate, but it's because he's pricing them right from day one. Yeah. So when I do put brokers on here, I interview him a little bit beforehand, I don't just let him walk on like, like you we met, we're on the show, we're talking. Right? I had enough research from all your stuff you have online, I just wanted to chat with you and get you on the show. A lot of the brokers, I got to do a pre screening just because if they're that typical, you know, what I call them in the real estate world is their their listing agents like they're all they're trying to do is collect a listing fees. I'm not interested, I don't know what value they have other than, you know, this is how a broker is going to value your business. Right. One of the biggest problems I see with them is the whole appeal scenario, right. And I've covered this on another podcast. So I apologize if you guys hear it for a second time. But I've got a business that's making a million dollars a year in revenue, I'd say it's only a 20% profit margin. So it's cranking out 200k, you know, technically at standard us kind of raise, I should be infringing on the industry, but it's kind of around 3x, right. So I should be at about 600k for that. Right? I go to business owner a business broker number one, and I said I got this business to sell and, and he goes, Well, how much do you think you're getting out of it as well? I need a million dollars to retire. It's like, oh, we can probably get you there. Right? Well, it's already we already know it's for 600. But this you know, the brokers like just said he'd get you there. So we already got you. I'm the business owner. So I've already got two other appointments, other brokers, let me double check, and then I'll come back to you, right? I go to business broker number two, and I go, Hey, you know, I just got off the phone with the other business broker. I'm doing these numbers, I give them my numbers and I say Can I really want a million dollars to retire in the last broker said if you get me there, and the next brokerage was right at 1.2.
Marty Fahncke 29:14
Right. You didn't know a broker bidding war. Yeah,
Ronald Skelton 29:17
you know, and by the time you get to third one, it's 1.5. And you know, of course as a business owner, I want the guy that's gonna get me 1.5 He listed it never sells because it was only originally worst. It's only truly valued at about probably 500 to 600k. Yep, right.
Marty Fahncke 29:31
Yep. That's those are the ones that I have those conversations they call me about usually six to nine months later. And they say Oh, I was with this broker and they never did anything. I never saw a buyer I never heard anything like it was just nothing happened. Well, nothing happened because it was massively overpriced. And then they say Can you can you help and I say yeah, I can help but only if you price it right. And your your your earlier expert donation of the difference between an advisor and a broker is spot on. And I'm really glad it was spot. Because when you said that I was like, Oh, I hope it's gonna agree because I consider my, my firm and advisory firm. And I was hoping you were gonna say what I what you said. So that was that was perfect. So yeah, we we Yes, we do the things where, you know, when we're when we're advising a company to sell we, you know, tell them to put it on this buy sale or you know, Flippa or micro require or you know, the different places search fund or all the different places you can put a business. But we are extremely strategic and finding buyers. So we'll sit down and I ask every, every client we work with, I say, give me 100 names, I want 100 names of who you think would make the perfect buyer for your business. And we have a team of researchers that goes through and finds out you know, who who's the contact? And who do we need to talk to if it's a great big company, do they have an m&a division, if it's a smaller one who's you know, whose is it going to be the president is going to be, you know, some sort of, you know, Chief growth officer who's going to be and so we'll find out who all those those contacts are. And then we actually go out and approach them. We do cold calling, we do emails, we do LinkedIn connections, we do direct mail campaigns, postcards, you name it, to reach those prospective buyers. And we generally find, I would say a good 40% of buyers, for a business comes from the sphere of influence of the business already. So whether it's the existing clients, whether it's existing vendors, whether its competitors, partners, you name it, we always ask those questions. Okay, well, who are all your vendors who you know, who writes checks to you? And who do you write checks to, that's our first start of our list. And then we look at you who are your competitors, and then which of those competitors do you think would actually make a great acquire for you, and that always gets this like clenching. You know, I don't, I don't want my competitors knowing for so they're not going to know your for sell, we're going to approach them blind, and we're going to say, hey, we've got a business in your industry, and we're gonna, you know, and so they're not going to know what you until they're, they're pretty far down the road. And a good number of businesses do sell that way. And that is really critical the difference between advisory and we can, we can help. The other difference is that we can do that for Colombo for clients, or we can just advise, and we have a lot of clients who they do all that themselves, they go out and start putting things together. And they do all the marketing, they do all the promotion, they handle all the tire kickers, which is always fun. And we just give them the strategy we give them, you know how to price it and how to put together your data room and your CRM and whatever else. But we aren't actually executing the effort for them, which can save them a lot of money in the in the upfront. Now generally we stay involved in negotiations and making sure everything gets gets closed. But yeah, we can, we can save them quite a bit of money over normal broker fees. And and frankly, as you mentioned, when you're out there strategically targeting specific buyers, who you know, would make good buyers, the business, generally it's going to you're gonna have more potential buyers and maybe get it into a bidding war versus just throwing it out there on a website and hoping somebody contacts you. So definition description.
Ronald Skelton 33:15
And to your previous point, before we before we got into this conversation where you were concerned what I was at a call to definition. It's always okay, on my podcast, if I say something wrong, call me out. It makes good podcast, right? It's like I'd rather be called out and have that information. So like, yeah, that's not exactly how that works. You know, I am humble enough to know that I'm new enough in this space that I too, probably have some misconceived notions about how everything's supposed to work, right? And I'd much rather learn from you on the podcast than I would for, you know, running a multimillion dollar company and doing it wrong or doing or making a I'm going to use a colorful acronym. I'd hate to get a hold of something and totally turn it FUBAR. Right. Yep. So, you know, I see when, in the intro, we talked about you're currently currently on you're doing some acquisitions now, right? In different industries and stuff. What is the exit plan? Your last company, you were working for that you did all the big, you know, acquisition for them? You said you took that public? You know, one of the one of the things that I want to know is as we're acquiring businesses and stuff, do you already have a kind of preconceived? We're going to do this, acquire them all and package them together and do a roll up and take it public? Or we're going to sell it to private equity or kind of what is your exit strategy on some of the stuff you're doing currently?
Marty Fahncke 34:39
The answer is yes to all of the above. And the reason why that is is because I have a lot of partnerships. I really enjoy working with partners who are complement areas where where I'm not as strong or areas where I don't have as much interest in working with them to help them so exceed, which helps me succeed, and helps my team succeed. So I actually have a couple of different strategies or projects going on with a couple of different partners. So there's one where we're building up that exact, you know, doing a roll up in the in the home healthcare space. And working on building that out, we've secured the funding, and we're acquiring and then eventually we do want to sell that to PE. I have no desire to go public ever again, that is a brutal process. And right now, there's frankly, I think there's more money in in selling to PE than there is even going public, especially when you look at the opportunity cost and the time, so. So yeah, so I've got one project where we're working on a massive roll up, and they want to sell that to PE, I've got another project where we are looking at just kind of consolidating, we probably won't sell the PE but we've got a certain couple of packaged goods companies that we believe will be able to sell to I helped a company several years ago, grow and then and then get sold to church and white, which is the the big packaged goods company that owns like Armand Hammer and all that kind of stuff. And so we've got, we've specifically got a kind of a consumer packaged goods play going on there. And then I have other projects that are more buying holds. So as I start to think about what retirement looks for me, I don't have any desire to like quit and go play golf. I've had for many years, I've had a vision of what retirement looks for me. And that is to at one time, that's funny, because I had this vision of I've far exceeded where I originally started. But I wanted to own 10% of 10 companies around the United States. And I wanted to ride around on my motorcycle and visit those 10 companies on a regular basis and consult and advise and be you know, more more strategic and in earn my earn my living from my investment equity. And that was 20 years ago, I think or maybe 15 years ago that I kind of set that goal I've had to up that goal because it's more like 30% of 30 companies or more more that I think will be realistically where where things look, but I enjoy having a diversified portfolio, I enjoy being in different verticals, I have everything from gluten free beer to accounting firms to health and wellness products to help you know home health care agencies printing shops, I have a diversified portfolio, partially because I just like having lots of things going on, but partially because a lot of my businesses do business with each other. And that's part of the prerequisite, you know, if you want to, if you want me to invest in your business, guess guess what, you know, if we do digital marketing, guess what digital marketing agency, we're probably going to use if you're doing direct mail and printing guests with direct mail and printing shop, we're probably going to use if you you know, guess the accounting firms probably going to be ones that I own part of. So that's always a great strategy to have a very diversified portfolio but have it integrated in leveraging businesses with each other. So so that's why the answer is a little of all of the above. You know, do I expect some major big paydays down the road with some of these roll ups are doing absolutely do I expect to continue to work in you know, SMEs and work with entrepreneur entrepreneurs who have a great fire in their belly, I love I love the energy of working with entrepreneurs, I love building businesses, I love making creating jobs, I love you know, coming up with a great marketing strategy and conceiving of it and executing it and seeing it be successful. And so and if I can do that in other businesses that I'm a part of, then I'm going to keep doing that and I will never ever stop doing it because that's I'm never going to just stop and go play golf never gonna happen. So
Ronald Skelton 38:47
let's just say that two things that I thought I was going to retire like I have some real estate and was kind of getting burned out on it in the market turned on us here so it was kind of didn't make sense to be buying too much more houses. So I moved to Dallas for a couple of years and thinking I wanted to retire and I was gonna go fishing a lot and do projects on the side you know, not even fishing within about six or seven days of fishing every day. I was like I gotta find something else to do. And then when COVID hit the wife is like you better go find stuff that because when she got furloughed and we were both in the house all the time, it's like you better go find something else to do. But on another note, I heard you say you wanted to ride your motorcycle around and visit your businesses. What kind of motorcycle you got.
Marty Fahncke 39:29
I have a Yamaha straddle liner which is a V twin. It's they don't make him anymore, but it's just an absolutely gorgeous bike. It's it's styled in an art deco style and named after an airplane that was the Boeing 707 Straddle liner which made its debut in the 1940s and so it's a really cool bike. I love it and do monitor as much as possible. I'd be on it right now if if we weren't doing this podcast 65 degrees today
Ronald Skelton 39:58
to go by Another one I actually used to ride going back to acquisitions or mergers, you have a you have a variety of your hands and a variety of different things. That's one of the things I love about this. I jokingly say I'm gloriously ADHD. So this really lends to like, being able to test different things, work with different companies, be involved with constantly learning new industries and stuff. I was on the we had, I don't know who Carl Allen is, but he teaches this. He's one of the mentors in the space. He teaches LBOs kind of one of the OG he's been doing it for a long time. And one of his top advices was stay in your lane, right? And I was like, Ah, I just my lane. You know, I went from it to get into degree of market at MBA and marketing to real estate. And now I'm in acquisitions and mergers, so at least I have three lanes, but I think the lane that I lane, I look at all of this a little I think a lot of people out there who are thinking about doing what, uh, I guess the coined phrase for it is Aqua acquisition entrepreneurship. If you're looking to do that stapled into Yeah, that's Oh, no, actually. Walker.
Marty Fahncke 41:15
Oh, the was the
Ronald Skelton 41:19
was the book that he wrote my then build. I didn't build the app. Yeah, exactly. On our podcast, he claimed that he kind of originated that. So I haven't done the origin of it. I'll give him credit for originating the acquisition entrepreneur. So you and I, we're gonna own that. Aqua retire. I'll share that with you. You can use it anywhere you want. I only heard of it yesterday. I was like, that's a great term. But, uh, anyway. Yeah. So I honestly think this is one of the few things where you could get out there, you know, even in the same industry, you could buy your suppliers, like I was looking at a concrete plant. And before we even got through, you know, all the negotiations was kind of fell apart, because they had some huge debt, they owe the IRS a million dollars that they didn't tell me on day one. But uh, but you know, as we're going through the process, I just started looking at ikusi they will their own doors and stuff, their own hinges and stuff, like who supplies their steel, their rebar? Right? They build their own forms and stuff, who supplies that materials and how, you know, because this company has been around for 60 plus years, their suppliers have been around for that while too so I started looking at instantly started looking at, you know, who am I selling to? Or would they be open to sell, you know, to selling to me, like selling their business back to me? Or and who am I buying from? So you brought that up earlier? So I honestly, you know, not to go against Carl's stay in your lane thing, I get it, you have a higher chance of succeeding and if you know the industry, but do you feel that it's necessary? When you're,
Marty Fahncke 42:54
I think that it depends on your definition of lane. Okay, so some people here stay in your lane, and they think, Okay, I've been in the concrete business. And so I should only look at doing m&a in concrete business. And that may be true for certain people. Now, my lane has always been growing businesses, through marketing. And so but I've done a number of different types of businesses. So my, my lane hasn't been limited to a product, vertical or a or a category vertical. My Lane has been limited to marketing and strategy and growth, can you grow it right? Even though I'm in a number of different businesses and a number of different verticals, I am staying in my lane by focusing on businesses I can grow. And I can help be strategic or in you know, they're missing, they're missing pieces that I know how to do in my sleep. And so when I'm looking at a business, I don't care if they're selling, you know, gluten free beer, or whether they're selling, you know, jewelry, if they need the kind of skill sets and connections and resources that I have, then they're in my lane. Because ultimately, businesses all operate the same way. Right? It's you have to sell a product or a service, you have to collect the money, you have to deliver it and then you have to you know, account for the money operationally and run the business to turn a profit and whether it's physical goods or whether it's services or whatever else, really businesses all the same. So to me, yes, you should stay in your lane, but don't get stuck on your lane being a particular vertical narrow vertical because like you said, there's concrete company right there's steel Well, you know what, somebody is still so focused that like, you know, I can't buy a steel company because I'm in my lane of concrete. Well, steel and concrete, they're, you know, they're industrial materials. Your clientele is probably going to be similar your sources are gonna be similar, your labor forces is going to be similar. They could be construed as not in the same lane, or you can look at it and say those are exactly in the same lane. So I think it's really a matter of perspective. So I agree, stay in your lane. But I disagree that your lane has to be narrow, narrowly defined as a specific vertical or category, I think you need to be open minded to what your lane is, and the skill sets you have and the passion you have. And where can those be beneficial to another business in another category, but still in your same weight
Ronald Skelton 45:30
centers. And as that concrete plant, one of the big problems I see in there, and I thought, well, maybe it'll sort of trying to run the numbers, if we could fix it is they were sitting on 26 acres, and only using the first probably five or six acres up front for all their buildings. And the rest of that was quite literally a concrete graveyard. They had actually dug down and buried some of it like anything that Mal and this is Oklahoma, I don't know that we have an EPA here. Yeah, first thing I asked them is if you have a problem with the EPA, because they had like 20 acres, or just like, chronic concrete graveyard back there, and I was at a by big grinder to sell it, you know, regrind or, you know, sell it for, you know, you know, fill in or something. But I was trying to run the numbers to see if that if you can make it profitable to grind that stuff down and sell it as gravel.
Marty Fahncke 46:18
That's what that was, my first thought was you've got you've got a potential asset and all the concrete there that maybe you could sell. And then of course, you got a potential asset and the real estate, how much is that worth? Once you clear that land? And then you know, turn in, obviously, industrial and commercial real estate can be very lucrative. So I always look at everything, where's the assets? Right? So it's a problem right now. It's a problem. It's a big, you know, environmental disaster back there. But is that an opportunity to turn around? So it's like you did the numbers. It's not an opportunity to turn it around. But that's how we have to look at things right.
Ronald Skelton 46:46
You know, it's what stopped us on that is actually, the funding that was one of the first like big negotiations I had. And I always like to tell the story Casey's listening because he's a buddy of mine. I have this buddy who's a Marine Corps vet. Military, I mean, 400% disabled Marine Corps Marine, right. And he was in on this deal. And he's in law school. He's about third year into it. He's got four or five degrees, and he's good friend. And but he was in on this deal. He's gonna, you know, do some stuff. You know, his wife owned a staffing and headhunting company. But so I brought him in on the deal. We're like, we're sitting at the negotiations table. We had already seen the whole horrible their books were so the offer was that I was sliding across the table as they were doing about 10 to $12 million a year in revenue. And I swear to you their profit at the end of the day was 30,001. Year and like 90,000, the year before, on on $12 million. So they were burning through cash, they owe the IRS 900. And something 1000. They had accounts payable of about two and a half 3 million. And so they were $4 million in debt. So I offered them $1 down and I take over their $4 million in debt. With the intent was there was another company nearby within 30 miles of theirs that was selling about 70% overlap and products, meaning they made the same thing storm shelters, drainage, culverts all that they poured the same thing, they only had about a 25% product difference. But they were running at a 22 and a half percent or 23% profit margin out well, right. So my goal and it was for sale. So my goal is to buy the little would buy the big one and have the little one helped me manage the big one. But what stopped that whole deal was, you know, the IRS said, Now, you know, they're in, they were going to quarterly meetings with the IRS on a payment structure. And they told them they were right about the deal. They told me we're gonna sell in the IRS late No, you're not.
Marty Fahncke 48:38
So as you want to pay the tax tax bill on acquisition, which is a million bucks out of your pocket, right?
Ronald Skelton 48:44
I had no intentions. I had never tried to fix the number one, their accounting was really horrible. And they had never tried to negotiate or fix the tax bill. So I had already retained an attorney, who had a forensic CPA was a tax attorney had a forensic CPA. I say I, my my attorney friend, the guy, the Marine, his neighbor is the head lawyer at one of the firms that does they have a forensic CPA team and they do tax negotiations. Step one for that was to audit all the books, cleaned them off, and then go to the IRS and negotiate a better settlement, you know, to cut that down and then the same thing with a lot of the vendors they owed. A lot of that was really old and I think we could have negotiated settlements out of a lot of it. Right? And so, you know, it was gonna cost me a lot less than 4 million to to clean it up. But uh, you know, the IRS came back and actually one of the banks that their main lending banks said, No, we're gonna, they're gonna put you on they put them on a plan to help clean that up. But they go back to the Marine. So the offer was $1 down takeover for $4 million a debt and not giving them anything. And I break out the manila folder I have the offer and lots of slides. across the table and I swear to God, this guy turns green. This is a Marine Corps vet right? turns green puts on his mask jumps up and heads to the bathroom. In this the whole slide of the offer Eat, eat the funnest thing to see. Because that's like, what the hell? Where's he going? It turned out last the what I've, after the meeting, I pulled him aside, I think what happened when he disappeared? Yeah, I didn't want you to I didn't want to throw up at the table, would you slid that across, I thought they were gonna want it up and throw it in your face. You know, the funny thing was is they didn't balk at the dollar down. I had a clause in there because their books are really bad. I had a 45 day. Right. right of refusal. Basically, I could roll it back, I can unwind. I had an online clause in the contract, said for the first 45 days that were in there running this if we if we got skeletons we haven't seen yet. And we've seen some bad ones. You know, we reserve the option to hand it back to you. And they were more concerned that I would go in there, run it for 30 days and hand that back to them than they were that I was only going to give them $1. Now now we're going to leave 40 Because we're doing six
Marty Fahncke 50:59
months, since they were hiding from you. Yeah,
Ronald Skelton 51:02
I want to work down to what we got 53 minutes now. We're getting close to the end. Let's make sure we know people know how to get to hold. You know, I enjoyed these conversations. We could talk all day on about opposition's. So let's go ahead and start with your LinkedIn. For those of you guys who are listening on the podcast. He's on LinkedIn under Marty, Marty. And I'm going to spell his last name just because it's not spelled the way that it's pronounced. It's F ah, in CKE. So if you if you go to your LinkedIn and you search that if your or you can go to my YouTube channel, it's on the screen right now, at the 53 minute mark 5355. Somewhere, you can jump to there. It'll be in the show notes for the podcast, and it'll be shownotes for you to and then his website is I'll put that up. It's West, was that west bound road.com. And that's just like it's spelled just like it said, w ESTBOU. In the ROA d.com westbound road.com. So if you want to reach out to Marty, talk to him, get some of his advice, or, you know, maybe work a deal with him. Thus, that's how you get a hold of him.
Marty Fahncke 52:17
Yep, thank you for that. Yeah. Anybody that wants to just brainstorm if they're thinking about selling their business, if they're thinking about buying businesses, and especially if you're looking to grow your business through acquisition, and you're wondering, you know, what are these 200 ways we have of doing that? Yeah, hit me up, and we can talk about it.
Ronald Skelton 52:35
So I have asked a lot of questions. We talked about a variety of topics, you know, is there anything in the back of your head like, man, we probably should have talked about this, or many should have asked me that? Is there anything we missed?
Marty Fahncke 52:47
Um, nothing in particular, I can think of, I just, I guess, I love doing this so much. I mean, I'm, I'm having the busiest without a doubt the busiest quarter I've ever had in my life right now. It's like everybody in the world woke up on New Year's Day and made a resolution to buy or sell a business. And my team is just, we're just all completely buried. But it's so much fun. I mean, I'm getting I'm excited to get up every morning and, you know, work 14 hours a day. Because it's just, it's just so, so interesting. And it's so many interesting people and interesting deals, and every business is unique, and every deal is unique. And it's really, it's really an amazing time to be in the business of buying and selling businesses. And I'm so grateful to be in it. And if you know, if it's something that people are thinking about, it's a great time to sell a business, it's great time to buy a business, which is just a great balance. Because you know, selling there's just a lot of there's a lot of buyers out there and buying a business, there's a lot of cash out there, that's more cash available than ever in history. And so you know, if it's something you've been thinking about, you know, give it a start. It's, it's, it could be a whole new career for you, you never know.
Ronald Skelton 54:00
Awesome. Thank you, Marty, for being on the show. Hang on for just a few minutes when I end the stream. And we'll chat for a couple minutes. All right. All right. Thank you, the investors and entrepreneurs professional mastermind, the investors and entrepreneurs professional mastermind combines that additional peer to peer mastermind introduce first in Napoleon Hills famous book Thinking Grow Rich, with accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think is possible. I suggest you take a visit over to tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind