How2Exit Episode 15: John Andrews - corporate partner in the London office of JMW solicitors.

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 John Andrews. John is a attorney. Or I guess in the UK, you call them solicitors. But here you're a corporate attorney, you specialize in corporate and commercial law and says your YouTube I mean, you are a LinkedIn profile says you offer a practical proactive cost effective advice for businesses of all types, and that you specialize in acquisitions, drafting and reviewing negotiating commercial agreements. So today, I'm here with you today. Thank you for being here, John. And, you know, thank you for showing up and being on the podcast.

John Andrews  1:10  
No, thanks for inviting me along.

Ronald Skelton  1:12  
So this will be fun. I always want my audience to kind of get to know you. So let's just start right there. Tell us a little bit about kind of how you got started, what made you want to become an attorney and of all things in the world, you could be doing an attorney that helps in the mergers and acquisitions and corporate contract negotiations. What does that path look like?

John Andrews  1:31  
Yeah, well, it's it's not been a traditional path. Actually, Ron, I, born and bred in Surrey, did my law degree at the London School of Economics didn't have a clue what I wanted to do, I was half thinking about going into the police force, and then went to the dark side, as most of my police officer friends would say, started life out as a litigation attorney, as you were saying the states decided that that was a young man's game when I got some mid 30s, and then retrained to become a corporate and commercial lawyer, my mid 30s. And I've been doing that for the last 20 years.

Ronald Skelton  2:12  
Awesome. So for the last 30 years, you've you say 20, or 30?

John Andrews  2:15  
20 as a corporate lawyer, 30 years as a lawyer inside.

Ronald Skelton  2:19  
Okay. So for the last 20 years, I'm sure you've seen all kinds of deals and deals that fall apart and stuff like that. So I think we're gonna have an interesting conversation, I have some US friends who are interested in buying a London based company. So and I know, I'm not going to solicit legal advice here. So I'm just kind of generally like, what are the things people should look out for? When, you know, when we're looking at buying companies, you know, in UK and London, is there anything that's like, really unique we got to be aware of?

John Andrews  2:55  
I think, I think the I think the key the key difference between buying in the UK and the states in my experience, is the is the buyers appetite for for risk, actually. What what you will find when I've when I've acted for American buyers, is that very often, when you're drafting the purchase agreement, you will have warranties, so promises about business contained in that purchase agreement. And I think in the States, it's quite common, if not usual for, for those warranties to be termed in the form of people have been indemnities. So the so the legal exposure for the seller is greater if those warranties a around true in the UK, there is a distinct difference between warranties and indemnities. And they're kept very separate. So warranties are not termed as indemnities. And to put it simply, that the exposure on the warranties tends to be less, and they tend to be more difficult to prove. So I think a US buyer acquiring business in the UK, will probably need to expect there will be a greater a greater exposure to risk under the terms of the agreement.

Ronald Skelton  4:10  
So one of the things I'm learning and I have not bought one bought a business in the UK, but I do have friends that are over there. I have friends who, you know, we all train under the same mentor guy, and he's from that area. So I'm connected quite a few there's a national database where the financials are kept. Does that help with the due diligence? I didn't want to name it because I'll butcher what it's called and

John Andrews  4:38  
and that's the database of businesses to acquire information about the businesses

Ronald Skelton  4:43  
and if the information about the business the financials, there's a national database where all public businesses have to report their financials to

John Andrews  4:50  
Yeah, absolutely. So essentially, all limited companies and limited liability partnerships have to file annual accounts. So they're filed at Companies House, that there's a formal record cap there of who the directors of the business are, who their accountants are, where they're registered offices, and they have to file file file accounts every year. Now, depending on the size of the business, that will determine how detailed those accounts are. So for for small businesses, those accounts will be pretty cursory. And the information that's available or financial information is quite limited. For bigger businesses, generally speaking to our business over over 5 million turnover, they will have to file audited accounts, which go into a lot more detail and a lot more information available at county sales in their file accounts.

Ronald Skelton  5:44  
I think it I think that actually would probably help considering like here, one of the things I find often as a small businesses, I'd say anything lower than 20, 25 employees, definitely anything less than 10 employees, it's very common for the books to be a real mess. If they have any at all, I you know, when I asked somebody to send their financials over and he's like, You want my bank statements like know your profit and loss, your you know, and he's like, a guy's making 1.5 in a million a year in revenue, you guys call it turnover. And he's got an accountant that does his taxes, but he doesn't have a bookkeeper accountant does, like profit loss statements, balance sheets and all that.

John Andrews  6:29  
Exactly, yeah, the acquisition process that we're looking for are quite apart from the farm accounts. We also want to see the management accounts on a month to month basis to see what's happening. And I think what I find, when I'm actually for buyers or sellers here, particularly for those smaller businesses, so owner managed businesses in particular, lots of them are run as lifestyle businesses, so that they'll say, well, the profit I make is x. But out of that, you know, I've taken the kids or holiday of paid for by extension of the label we put through the books, but actually, I'm far more profitable than my accounts show. The truth of it is over here, if you want to maximize the value of the business, you've got to plan probably two or three years in advance. If you're, you're running that kind of lifestyle business, stop putting that through the books and show you prove true profit, if you want to benefit from what the real profit of that business is.

Ronald Skelton  7:28  
Yeah, we do the same thing here. We want to we look at the last three years. And, you know, we can unwind some of that ourselves just by putting, you know, adding it back in. Yeah, it's a lot cleaner, and a lot, you know, easier for anybody looking to acquire, if you have that straightened out, right? If you spent the last two or three years keeping books that you're working on gearing it towards the sell, like maximizing what your sellers, discretionary earnings is or the bigger EBA and minimizing, you know, personal expenses out of there. So yeah. I looked at a company here locally, who the guy has him and his wife both every year, maybe about every 18 months, but usually within that same year, they drive the latest and greatest fancy Land Rovers, right, and they sign their leases are in in there, you know, so they've got, you know, a couple grand worth of leases for vehicles, and then their, their personal phones are in there. And they're like, well, we just brought our business phones for that. And so we started trying to add some of that back in. And, you know, there's some other stuff that's in there, like, just all of his home entertainment stuff. So like the cable internet service, the mean, it was just all mixed up. So yeah, so

John Andrews  8:48  
yeah, and you right, it but it takes a bit of time for you as a buyer to strip that stuff out and think when actually what what's the true profitability?

Ronald Skelton  8:57  
You know, I don't mind not doing it, because we buy it off of profitability. So if you really don't want the top price for your business, you know, like, and you're, and you're taking in three or four grand a month where they're pushing that expenses. If you don't want your 3x on that money, you know?

John Andrews  9:12  
Exactly right.

Ronald Skelton  9:13  
That's exactly right. Here in the United States, when we're looking at buying a business, the whole acquisitions or mergers process, it can take that for small quick deals, it could take weeks, I think I've seen a few done and like really short timeframes, I think they were really prepared. And the negotiations as easy or it can take 18 months. Just having all the stuff in the public house or whatever that was called there. Does that make it go any faster? Is there still a kind of what's the lifecycle of a, you know, I don't know, sub $10 million acquisition.

John Andrews  9:45  
Okay. So typically, with a with an acquisition here, whether it's a share purchase or an asset purchase. You'll have heads of terms first of all, which sets out the headline the headline Terms of the deal. So price, are there going to be personal guarantees, and he deferred consideration those sorts of things. So the headline terms, you'll then move pretty quickly from there, to the buyer's solicitor sending out an information request a due diligence request, asking information about the business would have set, we'll set up a data room, the center will answer that information request, upload data as a data room with those answers. Once we've got that information, we can do our investigations, we can do a report to the client. And around that stage, you'll start drafting the acquisition agreement. Typically, that takes two or three turns before it's in an agreed form goes backwards and forwards between attorneys. We then have the ancillary agreements that we have to draft, so you know, resignations of directors, appointment of directors, all those sorts of things. And then all else being equal, we'll proceed to completion. So a typical a typical deal in a comfortable timeframe will take probably eight to 12 weeks in the UK, you can do it quicker. Generally speaking, if you want to do it much quicker than that you're compromising on due diligence. That the biggest issue in the UK biggest delay to deals is usually the property side. Particularly if you're doing an asset purchase, if you're doing a share purchase, and the properties are owned by the limited companies that you're buying, then you don't need to do a separate assignment or transfer of those properties, because they come across as part of the company's assets, if you do with an asset purchase, so you are acquiring the business off of a limited company, but not by the shares itself, then you need a separate transfer process. And in the UK, that's still quite antiquated, quite paper based, you have to go if it's a leasehold property, you have to get the landlord's permission to transfer the lease. And all those things take time. So if it's a share, purchase with the property, you've registered to the company, and you're prepared to compromise a little on the DD process, you can cut that down to, you know, four weeks, five weeks, six weeks,

Ronald Skelton  12:27  
just for like, we do have a lot of listeners who just they're running businesses, and they're considering buying another business. So they're not what I would consider formally trained in this process, that what he was referring to right now is the difference between buying the company, the entity itself a share purchase, you're buying shares in the company, or setting up your own company, what we call a special purpose, Purpose Vehicle SPV, and buying just the assets of the business, so every chair, every computer, pretty much every other thing gets a line item, a price an invoice and gets your transfer and all the assets, including the brand names, the intellectual property that all gets transferred over with the hopes. And I say hopes because it's not always true, right? He's not in his head, it's the hopes that you're minimizing the liability, you're not, you're not buying their history, when you buy a company and all of its shares. Technically, you're buying kind of the history. So they've done something wrong, that hasn't shown up in the court system yet, you're going to get to deal with that. I would venture to say even in an asset purchase, you're still going to need to deal with it, you probably just have a better argument when at least here in the United States, you're still going to need to deal with it if they did something wrong. And they go to suing because you have all the assets that you know, and the business. But you're I think you got a better leg to stand on when you're in court to go like I didn't buy the the

John Andrews  13:44  
Yeah, I think that's why in the UK, it's a little bit more cut and dried. So the biggest risk of the UK with buying the shares in companies, you say you're buying its history, you will take it on as a going concern. The downside of that is there might be undisclosed litigation or complaints. Also, tax revenue issues are often cause cause problems. When you buy companies. The upside to it is the process can be a little bit more seamless, because there's no transfer of property. Also, if the business that you're acquiring has a number of long term contracts with clients, there's no change in the entity that supplying that service. It's still the same company. So you don't have to go to the client and ask for their agreement for the contract to be transferred across. Because there is no no change in the parties that have entered into that contract. With an asset purchase here. Commonly our agreements exclude liability for everything that took place. Prior to the acquisition. We're saying we're saying that we're leaving all of the liabilities and history with the selling company. We're just taking the assets. The exception to that In the UK is employee liabilities. So if there were issues with the employees prior to transfer, those employees transfer across to your new SPV. On the same terms and conditions, you can't change them, you can't hire harmonize them with your other employees. And if they had, if they were underpaid, if they were discriminated against the liabilities for those claims pass across to you, even though you've done an asset purchase. So what you then have to do is to protect your position by getting appropriate warranties and indemnities in the asset purchase agreement from the sell, is there an

Ronald Skelton  15:39  
insurance product that actually would protect you against something like that?

John Andrews  15:43  
Generally speaking, no. And if you can get it insured, it's hugely expensive. What, what you tend to do is do quite a lot of on asset purchases is do quite a lot of detail due diligence. And if you have any concerns, you either ensure that you have a decent element of deferred consideration. So you hold back part of the purchase price, you know, for a period of time or pay it over a period of times, or you have a specific retention, which you hold in a bank account, which we call an escrow account, for a period of time to make sure that any potential claims don't materialize. Generally speaking, most of these claims have to be bought within three to six months of their employment claims. So you try and hold back a sum of money for at least that period of time. If you identify an issue in your due diligence,

Ronald Skelton  16:33  
I would imagine that having done this for last 20 years and stuff, you've got a pretty good sampling of like what works and what doesn't, what would you say is the biggest thing that kills the deal from the seller side sellers trying to sell his business, you guys are helping them, you know, get the paperwork done, what what's the biggest thing that can prop up that would stop that process, the forward progress on that?

John Andrews  16:56  
I think the big issues are, as I say, first of all, not being honest in your accounts or in the financial information that you provide at the outset. Secondly, having unrealistic expectations as to as to what the multiple ways that you can achieve your business in your particular sector. And as you probably know, right, if you've done a few acquisitions, different sectors have different multiples. So some might be three times some might be five, some might be seven. But generally speaking by buyers, bias in the unreasonable terms of materials, but they know what most was applying particular sectors. So in most the deals I have formed down, it tends to be unrealistic expectations from the, from the service part on what they're going to get for their, what they can hope to achieve for their business. And that's why the heads are term stage is pretty important. Because if you can agree the headline figure there, and all the key terms, generally speaking, you're going to be okay, it's when it's when they've not been truthful when the financial information they've handed over or selective in what they hand over.

Ronald Skelton  18:01  
So I always blame the brokers on that. So yeah, I always tell the story that you know, a seller, you know, guy owns a manufacturing plant, he's getting towards retirement planning time, he decides he wants to sell. So he calls up a friends and tells them to go sell, they go, Hey, I got this, but he's a broker. So he calls broker number one and broker says, yeah, yeah, you know, well, how much do you want for your business? And the guy's like, well, a million dollars. And it's really only worth 700k. But the guy says, I can probably get you a million. So he's like, you know, I better get a second opinion. So he goes the next broker and the broker, he says, Well, you know, what do you want? Well, he goes, the last broker said, he can get me a million, he goes, Well look at it, I'm pretty sure I can get you 1.25. By the time they get the broker number three, it's 1.5. And then they go out, but that expectation in the market, nobody will give it it's only worth 700k on its best, best day. And you know, the deal never gets done. That's that happens a lot here. I think. Yeah, scary statistics here in the United States. I want to say it's in the 8080 something percent of all businesses listed by brokers never sell. Yeah. And I would imagine, you know, in true economics, if it was priced, right, somebody would buy it. Right.

John Andrews  19:05  
I think that's exactly right. And I think if you have a if you have a business where you've got a winning purchaser say, Well, look, if that's what you think this is worth, this is how it's gonna perform. Okay, put your money where your mouth is, the way to do it is there is a way to structure those deals to say what if it turns out to be as good as that, then what we'll do is, we'll pay you a bit upfront, we'll pay you a bit after one year, year, two, year three. And those deals at the moment in the UK a really common, I think, since we've had through through lockdown and COVID. They've been lots of small business owners that have said, Right, we've survived that period. Now's the time to go I don't want to go through that again. And I think I don't repeat the same mistakes. But we've seen this cycle before so 2000 to 2007 2008 when we had the crash, the economic crash. Same thing again, m&a lawyers became really busy because lots of small business owners decided they want to take the risk guy, now's the time to cash in. And it's those smaller businesses, where I think that buyers and sellers have to be a little bit more creative about how they structure their, their deal was and how the price is paid.

Ronald Skelton  20:18  
I often don't you know, somebody, if somebody gets on the phone with me and I talked to you this week, and I put fillers all the time, because I'm always looking. But when a seller says, Yeah, I want 1.5 million, or whatever the number is, I before we get to any due diligence, I haven't even seen their books when they told me what they want. My natural response is great. Let's see how we can get you there

John Andrews  20:36  
is a perfect buyer that is a turnkey buyer.

Ronald Skelton  20:41  
And it's rarely we can't get there. The last guy is like great, stay on for three years, double your revenue, and then we'll be there because you know, that's what the numbers work out to. And I'll even come on and help right I'll take a minority stake now I'll come on, we'll help you get to that level. And when we get there, you know, we'll we'll either sell it together to somebody else, or I'll buy you out. And

John Andrews  21:01  
what it's interesting you say that Ron, I did a I took part in a podcast during the summer with a guy called James Carr, who's on the track and staying guys. And listen to his speech was really interesting, because he he rarely buys 100% of any business, his his whole ethos of acquire businesses leave leave the seller with a stake because they've got an incentive to grow it. And that's worked well for him.

Ronald Skelton  21:30  
Yeah, I think it's a, it's great to when you have, especially when you have multi generational businesses, right? If you got a business has been around for three generations, there's got to be a set of those customers who want to talk to, like, if it's the Smith family foundry, or whatever it is, they're gonna want to talk to Mr. Smith, like keeping him around, even at a minority stake holder, like at 20% or so I'm very, very fond of that method myself, let's keep them on, let's do something. And you know, they have a vested stake in, you know, making sure that anybody that insist upon talking to family or you know, you know, helping having one of those guys, you know, do that they're on retainer, they can cut, you know, they own a piece of the business, they have a vested interest in coming back to help with stuff like that.

John Andrews  22:16  
Yeah. And also, I think, for those family run businesses, I think a lot of the employees quite like to have that feeling of continuity, at least for a period of time.

Ronald Skelton  22:25  
We talked about the seller side, like what does the seller need to bring the table? That's, you know, and your experience is that, you know, the right pricing kills a lot of the deals on from the buyer side, you know, what ticks the seller off where they just won't do business with the buyer? You know, having done this, as long as you have, I'm sure you've seen that a lot. Yeah,

John Andrews  22:45  
I can, I can say, the most common things where you've got, say, an inexperienced buyer or a new buyer, no track record, they want to put, they want to buy the business on deferred payment terms, so don't pay too much down. But they also don't want to give any personal guarantees or assurances that the seller is going to get their price. That's that's the biggest issue. So again, there's lots of these deals happening in the UK at the moment, where it's not uncommon for no payments to be made up front. So lots of the business are being sold at the moment have got retained profits, so cash in the business. So the setters are thinking, well, we've got half a million pounds sitting in our bank account. If we take that out as dividend or as or as salary, we're going to pay taxes not fall short of 50% in the UK on that at the moment. Whereas if they sell if they sell their shares in the business, so they limited company, and that half a million pounds is lent to the buyer. So essentially, the buyer use that cash is left in the business, the buyer uses those retained profits to fund the upfront payment. The sellers getting that half a million pounds out 10% tax rather than 50. So that on its own is worth worth a big chunk to them. So lots of deals have been done where the buyers are putting none of their own money in, they're using cash in the business to pay the upfront payment. And then the balance deferred over over a period of time. So the business self funds, the purchase, if that makes sense. Now, that works well. But what you've got is a set aside, well, if I'm not going to get the rest of my money for another two years or three years, what things go wrong in that period of time, I want an assurance that I'm going to get that and the best assurance you can have is a personal guarantee from the from the buyer. Most buyers don't want to give that and if I'm acting for a buyer, we try and work around it. But I think realistically if you are a buyer that's looking to buy and those sorts of terms you've got to be prepared to at least assume some risk in the deal.

Ronald Skelton  24:59  
You know, there are quite A few of the mentors out there, if people want to learn this, they're teaching that dollar down No Money Down deal. And it doesn't mean that the seller doesn't get money at the closing. It just means it's not coming from you. Right? Yeah. So it could be from a third party source like a private investor, or it could be from cash on hand, I would stray to say that if you don't have if you're looking at buying a business out there, then you don't have a war chest of some cash to put back in that you better figure out what normal operating expenses are and mandate that there's a certain amount of normal operating cash left in the bank.

John Andrews  25:32  
Absolutely. So what we do quite commonly hear is that the way we structure deals is that we have a, what we call a target working capital figure. So we want to know what cash the business needs to be cashflow for next month or two will will that cash left behind, and then everything over that can go out to the ground. So what you don't want to do is buy a business that actually has got a load of debt on day one, with no cash to finance it,

Ronald Skelton  26:00  
right. So always throw that stuff in there. We were in this space. I mean, I spent every day and that now, you've done this for 20 something years, a lot of things you and I just look at and look as normal, a lot of the listeners who want to do what they call here is Aqua hire or they're growing through acquisition, or they're trying to buy their first business because they come right out of college and they want to buy. There's a lot of news articles and conversations right now out in the public as instead of building, you know, building a business just by one. Yeah. Occasionally, I'm going to jump back into the weeds of things so that we make sure we don't leave some people behind there. Yeah. So I always I love these conversations, because I learned along the way too. What would be the best resources if somebody was looking to buy a business? In the UK? I know here, we have some websites up and some stuff like that. Can somebody actually search that, that that database of businesses out there?

John Andrews  27:08  
You can you can there's a number of different databases that you can search to get to find out these houses, businesses in the sector? actually find out find out these sorts of businesses for sales is a lot more difficult. Generally speaking, it's the brokers who have those and you need to go to the brokers websites. Of course, if you're a buyer, it's no skin off your nose, because you're not you're not paying the broker, it's the sellers doing it. That what again, was very common the UK is people buying databases of businesses in the sector they want to acquire, and then literally just firing out emails posting lessors saying, Look, I'm in the market do Do you want to sell your business. And again, at the lower end of the market in terms of value, lots of people think their business isn't saleable. And they suddenly get a letter or an email, send it, I want to I want to buy your I want to buy your hairdressing business, you're beauticians because I'm trying to build a chain of them. And very often than that there's deals to be done so people who wouldn't ordinarily think about selling thinking they're gonna run it and then retire and close it, we suddenly be open to a to an offer.

Ronald Skelton  28:15  
Here there's a huge aging population of the baby boomers who are still working still own their own business. And they're in their I want to say they're in their high 60s approaching their 70s now, and they're in that same boat, they just either don't don't know how to sell it. There's no succession plan whatsoever. Yeah. And I think that's what's interesting driving the push to get into this space. There's a lot of guys out teaching how to do this. You know, the Jeremy harbors of the world. Roland Frazier's the call Carl Allen's all those guys. Well, I've studied under some of them myself, just because, you know, I pick up one skill that to sharpen the sharpen the blade on the, you know, in the tool set here, then that makes an enormous difference. So what concerns you know, me is when you get a lot of new people into things, especially the guys coming out of the real estate space, where it's kind of what is residential real estate space in the United States is a little bit wild, wild west. Yeah. If they go do what they've done in the commercial real estate space, which is blanketly throw offers out all over the place, and then only talking to the people that accept them and negotiate it. That's a different world inside of leasing the US there's a failure, there's a element on commercial contracts, which is failure, failure to perform. That doesn't exist in the residential real estate space. Yeah. So, you know, I've met a young guy here who he's like, you know, I just, I just started sending letters of intent to every company I, like I run their mouth. I know where they're supposed to be. I send a letter of intent to him. And I was like, You need to have a few conversations before you get there. And he didn't get that there. You know, I know that Letters of Intent are non binding, but my fear is, if he's willing to jump that far forward, he's gonna get himself in a situation where there's some type of implied contract or you know, there's a lot of stuff that exists on the commercial space that doesn't exist in that residential, buying a home space. Yeah. But

John Andrews  30:19  
I'd agree with that. I think in the UK, in terms of actually putting a price for its I think that's pretty rare what what this route, what these lessons really are just a theater to see whether they're, there's somebody wants to sell, I think the danger of looking at accounts that Companies House, for example, as of as I mentioned to you, is that you make an offer, and that might be wildly over the top, suddenly, you then meet the guys in person, you get hold of some management information management accounts, you think, but you know what, that bears no relation to the, to the the figures that have been filed. And then you're in the situation of going back to that seller and say, well, actually, I'm going to offer you a quarter or a half of what I first mentioned, and that gets you off on a bad foot anyway. So I think if you were going to adopt this tactic of so scattergun approach of foreign out these letters, stay away from mentioning fingers and just say that I'm a buyer interested in buying in your market, I think I wouldn't go much further than that.

Ronald Skelton  31:20  
I agree that I could see it, getting them in trouble. And, and they do it here on the residential side, they just they jump on the, whatever databases are out there, they run their numbers, and they just start submitting offers all over the place. And they only negotiate on contracts that come back. And I think if you did that, in this commercial space, you could get nailed for failure to perform. I've seen people get sued over on commercial real estate, because they agreed to a contract. And then, you know, the other guy signed it. And then they found something they wanted to negotiate down. And it's, you've already signed the contract. It's a different game.

John Andrews  31:54  
It's interesting point, actually, because I guess if you send out a letter saying that I've seen your business, I want to buy it, and this is what I'll offer for it. And somebody fires back a letter saying, yes, deal done, you could be in trouble.

Ronald Skelton  32:07  
You know, you know, I don't think it'll get that bad. It's like, one of the reasons I jumped out of the real estate space is I don't remember I'm gonna butcher who actually made the quote, but there was a quote about the stock market is what about when, when a shoeshine boy starts giving you advice on on stocks, you probably shouldn't be in the stock market, right? In the United States, the real estate space was getting that way. And I had people just like barely, you know, that just graduated high school calling, you know, calling me trying to hold so many houses, and he's got 15 houses under contract, and none of them are priced. Right, right. And he's not gonna be able to sell any of them. Basically, whatever the seller said they wanted, he said yes. And then he tried to sell those contracts, you know, to investors like myself. And I just knew by looking at that, that eventually, it's going to turn bad. And just last November, they passed a law here in this state that says, you have to have a real estate license to actually wholesale contracts like that. Right? So that's what happens. And the same thing is gonna happen. And you know, in this commercial equity or business acquisition space, you get a bunch of new new guys in here that don't know what they're doing, and they start harming business owners, then we're absolutely gonna have new Listen, the United States, we regulate everything, you're gonna have new regulations that make it harder for the rest of us. So, you know, it's interesting that I'm seeing a lot more I mean, I've only been, like, full time doing this for about the last two years. And in that two years, I've seen new gurus, fava, have I seen, you know, new courses going out some really intelligent people getting into the space. But I've also seen a lot of people come into these courses have never owned a business never had anything other than a job. But they just paid 10 grand to learn how to buy and sell businesses, and they think that's what they're gonna do. So

John Andrews  33:54  
while I tell I'm coming across that fairly, fairly regularly and what you will, what you find is there's, there's lots of inexperienced purchasers. We had one the other day where there was such a disconnect between what the what the purchaser thought he'd agree with the centers and what the sellers want for their business. And we can even get to hedsor terms. Yeah, it was one phone call, it became Blacet, that the deal was never going to get off the ground ever.

Ronald Skelton  34:23  
Right. So if somebody were going to get into this space, and you know, in your market, what would you suggest their process be? Like if they were going to go buy a business? Go ahead.

John Andrews  34:37  
Yeah, I think I think the first part of it is this is ideally buy a business in the sector that you know something about. I think that you know, I've got people at the moment who, who are looking to acquire businesses, for example, in the care, home sector, residential care. Now that's highly regulated, highly specialized. So if you haven't got experienced in the in the area, unless you're looking to buy businesses got an established and maintainable management team in place already, it's not the kind of sector you should be looking at. So So I think the first rule is buy something that you know a bit about, you might have been a manager in a business or, or works in that business for a period of time. And that's the ideal sets you should then be looking to acquiring. I think, I think secondly, be realistic about the finances about what what can you what can you afford to do? What's your appetite for risk in doing these deals? And what do you stand to lose if they go wrong? I think those, those two tenants are key when you start out on this journey. Really.

Ronald Skelton  35:46  
It's interesting, you say that, I was looking at a business, I guess this week, I'm still looking at it. It's a furniture, commercial furniture. And if the seller happens to listen to this, Hi, I'm still looking, I'm still interested. But the interesting thing was is I just figured, you know, it's commercial, it's it's commercial furniture, it's office, conference tables, desk chair partitions, and that type of stuff, right? It's a full line. And it's a decent business to two and a half million in turnover. What I saw, I just figured, oh, it's just sell, it's a showroom and sells, right. And, but I happen to know some people in that space. So I started calling some of my friends that have been doing this for 2530 years, right now, this is a very unique space. It's not just like, you just don't jump in this and learn selling furniture overnight, you can't pull somebody off the street. There's a lot of like, you know, I guess designer work to design the layouts of the stuff. And there's just this. The whole point I'm making here is sometimes something looks really simple at the superficial level, the high level, and you're diving into it. And there's a lot of corporate knowledge that goes along with almost any any industry, right?

John Andrews  36:59  
I think that's right. So so taking the example you've just given, I'm guessing you need to know a bit about space planning, for example, health and safety issues, all those kinds of things, actually, on the face of it, you think this should be a straightforward business? But yeah, I get that. And that just reinforces I think, what my

Ronald Skelton  37:20  
what is one of the reps was telling me there's certain materials on certain one of these certain furnitures and stuff that are allowed in certain states enough, because the fire codes and, and hazard stuff, so like, there's just a lot to learn, you know, in any of these spaces, and then, you know, I'm thinking, hey, you just buy it office furniture that, you know, the sales cycles got to be 60 or 90 days, and like, No, you know, she was like, telling me that one of her client, you know, that's very often, you know, for a large moves and large furnishings of big corporate moves. It's 12 to 18 month sales cycle for somebody seriously, yeah. So yeah, you never would have never thought, right. I was just like, Oh, I'm leasing this space. I need I need, you know, desk for 100 employees. Make it happen, because I'm the ready, you know, ready, you know, ready fire aim guy, right? I just, I really just jumped in. And you know, I have two models, ready, fire, aim and lead, follow or get the hell out of my way. So to say that, okay, you got a plan for 12 to 18 months to move 150 employees? And everything has to be right. Yeah. So I started looking at it, and it's like, okay, there's only six employees there. And nobody's ready to be the general manager that the the the owners wanting to step off and do something else. Yeah, I need 10 plus employees in most companies to actually have enough of a team to where usually there's somebody there that can run it better than you. Yeah. And

John Andrews  38:43  
at the end of the day, doing what you do wrong. You don't want to be there on a day to day basis dealing with dealing with the nitty gritty. So yeah, so so so you know, there are some people who are serial entrepreneurs, you know, like yourself and buying different sectors. But generally speaking, when you're doing that you're acquiring businesses that have got a team in there that know that business are stable, will stay there and run it for you.

Ronald Skelton  39:10  
Normally, the other option is there was one unfortunately the they had a huge IRS problem. I always bring it up so everybody has a lot of podcasts heard this one a million times probably. But there's a concrete plant we were looking at and unfortunately they had a nearly million dollar IRS issue. But they said we couldn't take it over. But you know, they were third generation they both the two main leaders in this one of the lead and the first thing I did is I found they weren't really well run meaning and they were at that 10 to depending on what year between 10 and 13 million revenue turnover. What you call turnover we call revenue. Here when we say turnover is I always rephrase that because here turnover is losing employees. Your turnover is like your employees are coming and going so it's it's the it's you're not keeping employees very well or your customers are leaving So but the revenue was between 10 and 12 million, the first thing I did and they were profiting, like I want to say like a good year 50 to 100,000, like they were just eating everybody cash they can get their hands on. So the first thing I did is found a smaller one nearby, that was in the same market space selling almost the same product line that was run at a 28% profit margin and really well managed that was for sale. So the goal was buy them both and let the one that manages you know, the team really well manage both sides, they're 40 miles away. So there is a way around, like turning the company around without having to be the turn, turn arounds, specialists specialist, but you know, in my world is building teams and executing based off a team work. If you're a solo guy wanting to buy something, I would totally agree with you, you better buy something you really know, or be humble enough to know that you better you know, the company needs to afford the right people. So if you can't be the general manager, because you don't know the industry, do the do the salary evaluation to figure out what is a top notch industry, General Manager in that industry make and make sure your acquisitions and your buying your finances, that business can afford that guy because it needs

John Andrews  41:16  
I think you're right. And when you're doing your songs, you need to look at what costs you stripped out for the setup. So you know the sellers dividends, that their salary, that they're taking that their benefits and make some allowance within that not thinks yourself, I've cut that cost. That's that's bottom line profit? Do I need to reinvest that somewhere else, as you say, in a good general manager in you it? You know, in Google searches, all those sorts of things,

Ronald Skelton  41:46  
I often find that the seller is not paying themselves enough for me to replace them.

John Andrews  41:52  
There is that exactly right.

Ronald Skelton  41:54  
Yeah, nobody that does. You know, it's funny is there's a pest control company, I own a small pest control here. I bought it to help employ some some relatives I really like and I bought it too small. So lesson learned, don't ever buy yourself another job. And I did. But I'm looking for other ones. If you've got one out there, I'd be interested in it. But uh, the inside of that, when you buy something like super small, it's gonna eat up your calendar time, right? That company that the pest control company, it doesn't make the revenue to justify even a full time person answering the phone. So when my text can't answer the phone, it routes to me, right. And I've got other things I should be doing with my time. So that's just if you're out there, you're out there looking at businesses understand what you're buying and in not just the kind of business run itself with a team that's got there. But like, what, what hours you need, what hours are they need? Have you? Right, yeah. So you're saying that, you know, you probably don't want to spend a lot of time that furniture companies almost 600 miles from here. You're right. I don't want to spend a lot of time at that. I don't know where we're going with that. But we'll see. Jumping back to like, you know, the UK, London. You guys are out of lockdown. Now. This thing started a little bit.

John Andrews  43:15  
Yeah, we're fully officially fully out of lockdown. I think this this Thursday, actually. Yeah. Okay. So mask master go in.

Ronald Skelton  43:24  
Yeah. So the companies that are out there now who have survived who are thinking man, I don't want to go through that again and are looking to sell what is there like here we have three or four key sites business or biz, buy, sell calm and some other and I'm not plugging those guys. They're not sponsored or anything. But there's some sites and some tools you can go to loot net commercial real estate, has a section for businesses for sale. Are those active there? Also, are there other websites that you know, people would go look for business or for sale?

John Andrews  43:56  
I think the stakes is very different than that those sorts of sites here are are rare, actually, I think far more far more common in the States. That's why you'll find that this tactic of buying databases and foreign outlets is far more problem.

Ronald Skelton  44:15  
And I'm a copywriter previous training, my master's degree is in marketing, and I studied Dunderdale I have an entire shelf. So I know that you know, in order to get one of those companies to respond, the average direct mail response is one to 2%. So for every 100 letters,

John Andrews  44:33  
you did wrong about that, the deadrise about that. So there's some guys, I know you might send out 5000 lessons. If they get you know, 1010 responses that they're happy but as they say any takes one or two good ones out there. And then further away.

Ronald Skelton  44:52  
Yeah, I didn't want anybody here in this phone. Well, I set 40 letters last week and it don't work. I was like yeah, let's do that about six more times and see what you get. Right. So If you're if you're not willing to send at least 250 to 1000, you probably need to find another marketing mechanism.

John Andrews  45:07  
You're You're absolutely right. It's a it's a bolt mail exercise is what it is.

Ronald Skelton  45:12  
Yeah. So I built my real estate business off of it, I had a real estate business and we stopped foreclosures back when it was really bad here. And we just tracked everybody that was in that, you know, in the foreclosure process in our market, and they got a series of letters from us. So, but on a given month, we probably spent two grand or more on mail.

John Andrews  45:34  
Right? It's interesting, you say that I've got, just personally, I've got a property portfolio with some of my old law partners, wild firms. And we have less a year or two ago for somebody looking to buy it and we weren't interested in selling. We are now we've gone back to that person. So even if you don't get an instant response, yeah, it sticks in your mind, if you guess

Ronald Skelton  45:57  
that's a, that's a great point. One of the things you'll find also in southern litters of these business owners is they'll hold on to that letter, they'll stick it in a filing cabinet, or put it in a drawer or leave it on top of their desk. And everything changed. I always say that everything changes with time and circumstances. So if the timings, right, and they've just had, you know, sometimes you'll catch them, they just had a really rough week, and they're just done, you'll get that call. And the early. We were working on, we were working on a huge roll up here, and I can't because there's some legal issues, I'm not gonna say what it was or anything. But we're working on a huge roll up. And one of the members of that roll up, we got on the call, like, hey, you know, we've been doing this roll up now for nine months, I gotta, I just got a call from a letter I sent out before this, right. So that's another thing is consistency. If you're going to do their direct mail campaign, just keep sending it out. And you'll learn that, you know, a week from now, a year from now, you know, somebody is an island on that letter and call you and see if you're still interested.

John Andrews  46:54  
I think I think I think that's I think that's absolutely right.

Ronald Skelton  46:58  
So one of my things I always like to ask, we're about 4550 minutes now 47 minutes or something, I think is you know, out of all this stuff I asked, you know, we've had some pretty good conversations. But what are something I should have asked like, what am I missing? There's just got to be a great like, and he really should just ask me this, because we really need to talk about that and the acquisitions and merger space.

John Andrews  47:21  
Well, so in terms in terms of the UK sexual or just generally,

Ronald Skelton  47:27  
if you can add value to either one I'm I'm all ears. Let's hear it. So

John Andrews  47:31  
well. That's a really interesting question. You put me on the spot there, Ron. So I guess I would say, say, I think that I think the what I would say to you is this is that in terms of in terms of acquiring a business, no business is ever going to be perfect. That but the real key, I think in in acquiring a business is making sure, obviously, you got a good m&a lawyer. But as important if not more important, make sure you've got the good understanding of finance figures and have a good account payable. Because if if you get the figures, right, and you look at the accounts properly, and you're happy with the underlying supporting documentation, post deal. It's always the accounts, tax debt, cash flow that become issues. So if you've, if you've checked the finances out as the first step in your acquisition process, and they stack up, then I think that you're gonna, you're going to find the deals you undertake, generally speaking, are going to, we're going to make you more likely to make you happy than not.

Ronald Skelton  48:38  
Yeah, and I agree with that. And know for somebody like myself, I've you know, I've had accounting and both my undergrad and my grad degree, but I'm no accountant by any means. So I know enough to look through and like if I see something really awkward, but I also know enough to, if I see something like that I have somebody else look at here in the United States, if you're going to do something like what they call an LBO, leveraged buyout, if you're going to use a Small Business Administration loan, the a lot of people say the bank will do the due diligence for you to I would say don't don't trust that I mean, they're gonna take their own money. But yeah, I, what I what I particularly do is I build teams, so I always have an accountant and on the team or somebody else that can, that's what they do right there. They're either are a CPA or they're what I refer to as a recovering CPA, meaning they were one of they don't want to be one anymore. They've got the credentials for it, but they don't want to that's not their 40 hour a week job. Yeah, I have them go through everything and show me you know, show me new red flag, show me anything I should be concerned about. And, you know,

John Andrews  49:42  
and I think that's crucial. I think you have a piece of advice is is that don't use an m&a lawyer. This is not me selling my services. Basically. We do these deals day in day out. Lots of other attorneys and lawyers may dabble in it. But generally speaking We know where the pitfalls are, we know what we're looking for. And often you'll find that we can deal with the deals quicker, and probably more cost effectively, because we know what the parameters are. We know what points to take what points not to take. So I think having a good having a good team on board, that it's experienced m&a work, both from accountancy, and legal point of view is, is a must, if you want to go into this field.

Ronald Skelton  50:26  
I get I can see that the when you're when you're doing that the deal finding the attorney one of the one of the reasons I would push I'm trying to formulate a thought here, I'm kind of spin in here. Did legal due diligence, right? It's there's an acquired skill to that. So your m&a attorneys are going to be able to know what databases to search. I actually had a local attorney do a little bit of due diligence for me. And I found stuff they didn't find, right. Yeah, they were just this was just a, you know, a trust attorney, a friend. I was looking at a particular company, and he wanted to get into the space. I said, cool, you know, do the legal due diligence for me see if there's any lawsuits, anything pending. And he's totally skipped over finding what we call UCC liens, which are really important. So yeah, I would, I would say find somebody who's is specialized in the mergers and acquisition space, there is a fine art to really understanding legal liabilities, and where those things are tucked in and hidden. Right. So here in United States, every court system is independent, so every county, so you may have both state level, county level and federal level, and somebody could be tied up in a local state level court on a lawsuit that's expensive. And it may not even be the state their primary operating it might be one other branches and stuff. And you'll miss out you'll you're gonna you can get a hold of something that has a heck of a liability. Now, there's disclosures inside of these contracts that say if you don't disclose any legal liabilities, or you know, but that doesn't save your time, or energy or potential risk

John Andrews  52:09  
is so what a good having the contract. The truth is, if you've got to sue on those provisions, it's expensive. It's time consuming. And that's that's not why you're buying the business. You want to buy it and trade it.

Ronald Skelton  52:22  
Yeah, there's it's rarely profitable to have to take somebody to court over a mistake like that. It's rarely going to get the money back out of it. He's, well, it's, it's, we're at the top of the hour now. And, you know, I think we've covered some really cool topics. I want to thank you for being on the show. If people want to contact you, is it okay, if I show them your email address? That's what

John Andrews  52:44  
you think please feel free to do that. That'd be great Ron, yeah.

Ronald Skelton  52:47  
Can you verify that for me? Is that the correct one?

John Andrews  52:50  
That's the one. Yeah, absolutely. All they can find me through LinkedIn as well, whichever is easier.

Ronald Skelton  52:56  
For the guys who are not on video, it is John Andrews at J. Elma w.co.uk. And I'll put that in the show notes notes. You know what we usually don't put text in the show notes like this, because the spam scrapers will grab it and take it out. It's on the screen right now. And if you're listening in, I'll repeat it one more time. It's John Andrews, it's felt Jo HN Andre ws at JLW. Stock co.uk. And that's his email address. If you want to reach out to him, you're thinking about buying a business in London, and having him as a great resource. We appreciate having you on the show. If you'll hang out for a few seconds afterwards. You and I can chat. And we'll call it a day.

John Andrews  53:42  
Great. Thanks very much.

Ronald Skelton  53:44  
All right. The investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that traditional peer to peer mastermind interviews first and Napoleon Hill's 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 Bo pass roadblocks and achieve success faster than you might think possible. I suggest you take a visit over to tiepm.com that's tiepm.com and check out the investors and entrepreneurs professional mastermind