Most people hear about spectacular acquisitions made by strategic acquirers or giant private equity groups.
But the reality is, you’re likely to sell your company to a small business in your sector that nobody outside your industry has ever heard of.
In our latest episode of Built to Sell Radio, part of our Inside the Mind of an Acquirer series, we get inside the head of Kristi Herold.
Kristi is the founder of JAM, a company based in Toronto that connects people through adult recreational sports leagues and corporate team-building events.
Kristi has successfully completed 11 acquisitions, making her a prime example of how small businesses buy other small companies.
You’ll discover how to:
Understand what small business acquirers look for in potential acquisition targets.
Learn the key steps one small business owner uses to prepare for an acquisition.
Recognize the deal structures small acquirers use to ensure favorable terms.
Protect your interests when selling to another small business owner.
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About Kristi Herold
Kristi Herold is a best-selling author, professional speaker, and award-winning CEO & Founder of JAM. Her passion for active living, entrepreneurship, and promoting a healthy “workPLAYce culture” has driven her to lead her team in growing JAM into a global organization. JAM is one of the world’s largest adult recreational sports league providers, as well as a corporate team-building event provider and culture consultant. The organization is dedicated to fostering friendships and connecting individuals and corporate teams through PLAY.
Her book, It Pays to PLAY: How Play Improves Business Culture, is a valuable resource filled with powerful information, fun anecdotes, and practical tips to help organizations playfully connect with their teams. The book demonstrates how play can lead to improvements in retention, engagement, and innovation while also benefiting employees’ physical and mental health and the company’s bottom line.
In 2019, her team founded Keep Playing Kids, a national not-for-profit organization that provides free sports programs to children in communities, regardless of gender, skill level, or family income.
Definitions
Due-Diligence:
This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.
Earn-out:
This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.
Letter of Intent (LOI):
This document outlines the basic terms and conditions of a deal before a formal agreement is drawn up. It serves as a mutual commitment between the buyer and the seller to move forward with the transaction on the agreed-upon terms.
Re-Trading:
This occurs when a buyer attempts to renegotiate the purchase price of a deal after initially agreeing to one. It is often seen unfavorably as it occurs after due diligence, seemingly exploiting newly discovered information.
Sellers Discretionary Earnings (SDE):
This represents the earnings of a business before the owner’s salary, interest, taxes, depreciation, and amortization. It’s used to assess the true earning potential of a small business. Imagine you have a lemonade stand.
At the end of the day, you count how much money you made. But from this money, you need to pay for the lemons, sugar, cups, etc. What you have left after paying for these things is similar to what businesses call “profit.”
However, if you paid yourself a small amount for your time running the lemonade stand, or maybe you bought a new sign to attract more customers, those are costs that are specific to you as the owner and are considered “discretionary.” They are costs that a new owner might not have or might choose to spend differently.
So, Seller’s Discretionary Earnings (SDE) in business terms is like the money left from the lemonade stand, plus any extra costs or payments that were specific to the current owner. It’s a way to show how much money a new owner might expect to earn from the business, considering they might have different ways of running things. In simpler terms, it’s a measure of a business’s earning power from the viewpoint of the owner.
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