My Oh-So-Humiliating Business Acquisition Disaster Story

Honey, I don’t know how to say this.
I think I’m going to lose my investment in the firm I bought, and we may be liable for a substantial part of the business’ debt.

I muttered those words to my soon-to-be wife.

Yep—I bought a company the wrong way. It was privately-held and an 8-figure deal.

And, this disaster should not have happened!

My story is about how I went from a successful career advising other people on how to fix their messes to having to fix a mess that I created for myself.

I gave up a very high income stream for what I thought would be a better opportunity . . . which, instead, cost me lots of money and time, with an exit that barely broke even. Not to mention my anger and humiliation. And shutting the door on my previous career.

How could I have been so stupid?

Business Buyer Fever. That’s a saying that I use, nowadays, with misguided buyers. Of course, I wish I knew about Buyer Fever before catching my near-fatal case of it.

You see, I wanted this particular company so badly that I temporarily suspended my common sense.

I nearly lost all the money it had taken me years to earn. And, what about my reputation?

Why did I make this mistake?

I was a know-it-all. A do-it-yourselfer.

I didn’t force the seller to substantiate ALL the good news in the company’s financial statements. I was mesmerized by the seller’s forecast of more good things to come. I failed to fully investigate the non-financial aspects of the business (such as the firm’s relationships with its customers, employees, creditors, suppliers, and landlord). I did not employ the best (or the safest) mix, for me, of acquisition and post-acquisition financing.

You see, the business was a holding company, containing a consulting entity, 11 travel agencies, and a travel agent training school.

The operator (the seller) understood marketing for the travel industry sector. But, he didn’t have a clue about managing the holding company and its finances. Money matters were delegated to an almost-inept accountant.

When I asked the operator why he wanted to sell his business, especially given what appeared to be its BIG potential, he said: “I have an even bigger opportunity in another industry.”

It gets worse: My purchase and sale agreement was done by their lawyer. And, their accountant had been kept in the dark about the shenanigans, so my interview with the accountant was misleading.

It took me many months to reach agreements with unpaid vendors. The delinquent sum was seven times larger than represented to me before I bought the company.

I was burning through money three ways:

#1. My lawyer demanded an upfront retainer to take my case. It was $30,000. In 1980 dollars.

#2. My consulting practice was virtually shut down during the process.

#3. I was pumping personal funds into the insolvent business to keep it afloat. if I hadn’t, I would have been wiped out because of my personal liability for the firm’s debt.

• It took me a year to untangle myself from this mess.

So, why am I revealing this to you?

If it can happen to me, it can happen to you.

Here’s what I mean:

I didn’t know how to begin, so I proceeded as if I knew what I was doing.

Apparently, I didn’t. Because, within a month of buying the company I discovered I’d been defrauded. It took a year to unwind that dumb deal and to achieve legal recourse against the perpetrators. And all along I was trying to figure out how to buy the right business the right way.

Had I adequately deployed the due diligence process, which today I use with my clients, I might have detected the risks before I closed on my misguided transaction.

I pledged, from then on, to devote most of my business life to helping people avoid mistakes, so they could profit from business ownership.

Since my disastrous acquisition, I’ve been noting mistakes people make during their business buying activity, some of which I observed while consulting with clients; other mistakes were reported to me by some of the 298 independent professional advisors, whom I’ve trained in the use of my trade secrets and know-how.

Lessons

Here’s a funny story with a lesson: A few days after buying a business, the new owner went to a fortune teller who looked into a crystal ball and said, “Owning your business will be a living nightmare for the next three years.”

The buyer asked, hopefully: “And then what will happen?”

“Then you’ll get used to it”

You see, the sale and purchase of businesses seems like a good idea until things go wrong. 

I was snookered because I didn’t know what I didn’t know—proving the saying: Success does not always breed success.

The first thing to understand is sellers and their advisors do not tell buyers enough of what buyers need to know to make informed decisions about buying or investing in companies.

The second thing you need to know is neither will any of your individual advisors. You need a team to safely and profitably buy or sell a small or midsize business. You must effectively participate on your team, such as gathering how-to-do-it information on your own.

What you don’t know you don’t know can hurt.

Buyer competition forces some acquirers to make fatal concessions when negotiating with sellers.

• That’s why so many people buy the right businesses the wrong ways.
• Or, they have to settle for what other searchers don’t want.

The easiest and best way to avoid buying a loser is to get access to lots of winners . . . especially while avoiding buyer competition.

Okay, I have another story. It’s the most powerful lesson I learned.

It’s the story of  “The Ransom of Red Chief.”
It’s about two men who kidnap and demand a ransom for a wealthy man’s son. Eventually, the kidnappers are driven crazy by the boy’s spoiled and hyperactive behavior . . . so, the kidnappers pay the boy’s father to take back the brat.

That story’s about getting our just deserts, by turning the tables on whomever cheats us; compelling them to pay the aggrieved person . . . to be rid him or her.

What’s next?

One of the first things I did after I was done with my dumb deal was to become an expert on creative financing, business valuation and how to buy the right businesses the right ways.

I’m going to continue helping people to learn from my mistakes and my successes.

Had I known about some of the tactics I explain in my how-to-do-it books, and coaching my clients, I would not have been under so much pressure while I was extricating myself from my mess.

If you’re not sure you know everything you need to know, so you can safely and profitably proceed, I hope you will contact me. We can Zoom to talk about it.

My Comeback Story

I had to figure out how to milk the company, and prepare it so I could pass it on to someone else.  And, the good news is    it enabled me to see a whole new opportunity, which was creating a unique advisory niche: Business Buyer Advocate.

So, here’s what happened. After wasting a year trying to unscramble my rotten egg, and suing the seller and the investors for fraud and misrepresentation, I focused on the investors.

The investors were prominent, affluent people, but had no other connections to the travel industry. They’d funded the company’s operator because they, too, believed his story. But, they didn’t pay much attention to the business, especially during the year when I was trying to buy the company.

So, what happened, thanks to me bothering them, demanding recourse? Those wealthy investors were motivated to accept my settlement offer, because they didn’t want their prominence to be soiled in public. And the operator couldn’t care less, because he moved on after our 30-day transition agreement.

I got back all my money I invested to buy the company, and forgiveness of the seller financing.

(There was no bank financing.)

Oh, and, I got to keep the company.

During this time I transformed the company’s business model into a franchise system. The 11 travel agencies became franchisees. The first area developer, whom I recruited to market and manage part of the franchise system, liked the potential for what we were doing so much he wanted to buy the company, which I happily sold to him at a modest increase over what I’d put into the business.

Since then, I’ve enjoyed twenty-ei

One of the first things I did after I was done with this dumb deal was to become an expert on creative financing, business valuation and how to buy the right businesses the right ways. Had I known about some of the tactics I explain to you in my how-to books, I would not have been under so much pressure while I was extricating myself from my mess.

Those experiences, and advising clients for more than 30-years, enables me to inform and guide buyers of small and midsize businesses, so they can be the first choice of brokers and sellers. And complete more-profitable done deals sooner with less aggravation at lower cost in the USA, Canada, Australia and the U.K.

Here’s some of what I can bring to your side of the dealmaking table if you include me on your advisory team:

I’m The Original Business Buyer Advocate ®. I’m not a business broker; never have been.

For more than 30-years, over 100,000 entrepreneurs and advisors, worldwide, have relied upon my books and trainings to creatively finance, buy, or sell small and midsize businesses. I’ve privately coached more than 1,000 clients. And, I’ve trained 298 independent advisors, so they can better-serve people buying and selling businesses.

• But I can’t unscramble eggs, so let’s collaborate before things get messy for you.

This is the first valuable deliverable I provide for people wanting to find and buy the right businesses the right ways: Targeting the best opportunities and then finding them.

It comes down to this: How good or bad do you want your experience to be when buying or selling a business (or when you advise your clients)?

• To know (enough) or not to know? That is the question.

Read my book: How to Buy the Right Business the Right Way—Dos, Don’ts & Profit Strategies.

You can search more effectively to find, and then contract for better deals, sooner, if you schedule an hour of coaching with me.

Email Ted J. Leverette, The Original Business Buyer Advocate ®. “Partner” On-Call Network, LLC