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Take Five #046: Japan’s business owners are giving away their companies, and more

1. The 8 step plan of how to transition on Day 1 of SMB ownership

Reg Zeller @RegZeller

How we handle day 1 (this works for employees in a location like manuf - not if they’re getting in trucks like @WilsonCompanies @StrongpointRich) This is done on Monday or Tuesday, never late in the week so employees go home and catastrophize over the weekend: 1. Let employees… https://t.co/mKOhYvk1HE

2. “We executed the LOI on September 30, 2022 and closed on March 6, 2023... 157 days.”

Some takeaways from someone who closed on a deal within a year of starting their search:

We executed the LOI on September 30, 2022 and closed on March 6, 2023... 157 days. We've owned the business for almost 4 days. No real surprises... but maybe its still early in the process! The main thing is that we got it done. The best thing that we did was hire a management team that could focus on the project 100% and a M&A firm that was top notch. We have raised $3 million and would like to create more runway with a total equity raise of $5 million. This is an early stage company with lots of technology commercialization to do, not your typical enduringly profitable 30 year old firm. What we've learned is that products were installed, proof of concept was developed, and unfortunately, the sellers never followed up. That was next to impossible to learn in the due diligence process, but we were able to discern that and somewhat expected that. Now we are reacting to feedback from a place of listening and empathy. That has won a lot of goodwill for follow up and making things right. Will keep you updated on that one.

From “1st Deal Done - Lessons Learned” on Searchfunder

3. The biggest differences between being a Search CEO vs. a SMB Owner

Derek Turner @AZ_SMB

After lurking on SMBTwit, I’d like to introduce myself: “Turncoat Search Fund Guy” I did a traditional search fund in 2017, bought in 2018, sold in 2022 2 mo ago, I turned my back on the SF model, signed a PG, and bought an SMB 7 BIG diffs btw “Search CEO” and “SMB Owner” 🧵👇

It’s just me, growing this family-owned business, taking care of my employees, and doing right by customers.
I still have my issues with self-funded searching as a model (future thread), but I’m a big fan of the independence, wealth creation, and impact that it can facilitate. It’s not for everyone, but it’s definitely for more people than you might assume.

4. A survey of 2022’s dead deals and broken LOIs

From “Unpacking 2022’s Dead Deals and Broken LOIs” by Axial:

On Axial’s lower middle market deal sourcing platform, we saw slightly elevated LOI breakage rates and lower average deal sizes and decided to study it. We are grateful to the surveyed Axial members who provided both data and useful color on what in their eyes broke the deal. The below results were compiled and anonymized based on the 48 received replies.
Somewhat surprisingly, macro events weren’t the main event, although they likely raised the stakes and created more price discipline with buyers. Debt financing / availability was not the issue either, despite it being discussed ad nauseam by the financial media.
The main event was an all too familiar mix of seller financial under-preparedness, unsuccessful renegotiations post-diligence, and seller cold feet.

5. Interesting NYT read: “Japan’s Business Owners Can’t Find Successors. This Man Is Giving His Away.”

Pulled out some choice sections from this NYT article about why Japan’s small businesses struggle with succession:

Hidekazu Yokoyama has spent three decades building a thriving logistics business on Japan’s snowy northern island of Hokkaido, an area that provides much of the country’s milk.
Last year, he decided to give it all away.

One of the biggest obstacles to finding a successor has been tradition, said Tsuneo Watanabe, a director of Nihon M&A Center, a company that specializes in finding buyers for valuable small and medium-size enterprises. The company, founded in 1991, has become enormously lucrative, recording $359 million in revenue in 2021.

In 2021, government help centers and the top five merger-and-acquisitions services found buyers for only 2,413 businesses, according to Japan’s trade ministry. Another 44,000 were abandoned. Over 55 percent of those were still profitable when they closed.

From “Japan’s Business Owners Can’t Find Successors. This Man Is Giving His Away.” on the New York Times

Upcoming Events in the SMB & Business Acquisition Space

(A ✨new✨ section in our newsletter: we’ll be adding to this list weekly, so send over any events you think we’ve missed!)

Lisa Forrest @LisaGForrest

SMB Twit / EtA Searchers in the Philly area on 3-22-23 and want to meet up for drinks? Some of us will be in town for the Wharton EtA conf with time on our hands. @JordanPCarter @SMB_ash @SMB_Attorney DM with RSVP and we'll organize around the interest level

March 23, 2023: The Wharton ETA Summit 2023 is hosted on 3/23 in Philadelphia, PA (link here).

Heather Endresen @EndresenHeather

Boston area Searcher Meet-up, March 30th. Julie Morse of Orr & Reno will be co-hosting. If you don't already know Julie, she is a fantastic buyer's counsel in the Search Fund community. Please DM me if you'd like to register for the event.

Jacob Williamson @jacubwilliamson

🚨Florida SMB Meetup 🚨 Grab your spot at the #SMB meetup at the Sun N Fun Airshow with @FlyingMagazine on March 30. Meet & learn from SMB twitter friends. The meetup is free, but the airshow has admission (can't help it) eventbrite.com/e/544428729987

eventbrite.comFlorida SMB Meetup ✈️ 3/30The DFW meetup went so well! So, let’s get everyone together again in sunny Central Florida.

Sam Rosati @Sam_Rosati

Golfers of SMBTwit: My buddy @rondebarber and I are on the Board of the @ValsparChamp, the PGA Tour event in March in Tampa. We are hosting a SMBTwit meetup to watch the tournament, and a separate "Monday after the tournament" round of golf on the course the pros are playing...

Chris Munn @chrisxmunn

And we’re back! Calling all searchers, operators, owners and vendors to sunny Southern California. This will be a great networking event for the business community in SoCal. See you there 4/6!

John Wilson @WilsonCompanies

April 20th, mark you calendars for a quick trip to Cleveland We are running a Holdco 101 bootcamp during the day and a SMB happy hour at night! Im excited to see y'all - details to follow soon

SMBash @SMB_ash

🚨SMBash ‘23 Announcement🚨 We’re excited to share the theme for SMBash ’23! This year, we’re zeroing in on search with two days devoted to finding, acquiring, and investing in SMB/Micro-PE deals. Here’s a quick summary:👇

Pursuant Capital @PursuantCapital

Applications are OPEN for the first two Search Fund Bootcamps of '23: -February 8-10 -May 17-19 @PursuantCapital's Bootcamp is a 3-day, intensive, in-person training course with Pursuant, its Deal Team (SBA lender, QofE, Legal, Insurance, Tax), ETA investors & Searcher CEOs.

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Take Five #046: Japan’s business owners are…