Intentional Growth #312: [Owner Success Stories]: Demystifying Business Valuations by Comparing Two Offers with Chris Yates
Ep. #4 [THEME THREE]
In this last episode of the series, “Demystifying Business Valuations,” we have Chris Yates, the owner of Rhodium Weekend, a community of online entrepreneurs, on the show to share the story of how he sold his business, Centurica. Chris received two offers from different buyers that were wildly different. In this episode, we hammer home the concept of intrinsic financial value vs. strategic transaction value by unpacking the differences in Chris’s offers.
In the first half of this episode, Chris goes in-depth with the first offer he got from a strategic buyer–an Amazon aggregator–that wanted to do an “acquihire” (essentially wanting to purchase the company for the people and processes). Chris describes how the purpose of the deal drove the deal structure and terms and how it eventually blew the deal up.
In the second half, Chris walks us through how he doubled down and focused on the intrinsic financial value of the company by getting a bank to pre-approve an SBA loan (ultimately determining the intrinsic financial value of the company based on the risk of the cash flow).
Getting clear on the intrinsic financial valuation helped Chris during the second negotiation for a few reasons. First, he knew what his valuation was regardless of the specific buyer. Second, Chris was able to clearly negotiate the terms and deal structure efficiently because he knew what the company’s intrinsic value was worth. In addition, there are limitations to “creative” deal structures when an SBA is used.
Being approached by a buyer can cause a rush of emotions for you as the business owner. However, in this series, we have consistently discussed how getting clarity on the intrinsic financial value is crucial so you can weigh all your options against what you know the company is worth.
//WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast
What You Will Learn
- How to structure an LOI so a buyer can’t steal your clients, processes, and systems.
- Why Chris decided to exit even though he was getting fed opportunity from old and existing clients.
- What was driving the acquihire buyer to want Centurica so badly.
- How Chris got into the mind of the acquihire buyer to really understand why they wanted his company.
- Why understanding what he wanted and why helped Chris negotiate with a buyer that initially had an unappealing offer.
- How Chris realized that ALL of the decision makers need to be sitting at the deal table.
- The uncertainties Chris had in the first deal and why he wished he had set the terms instead of reacting to each offer (and pulled away at the beginning knowing it wouldn't work).
- Chris’s thought process after the first deal fell apart and how it benefited him for the next deal.
- Why the buyer taking out an SBA loan was so attractive to Chris in his second negotiation.
- How Chris handled the aggregator–who was also a competitor–wanting to get inside his client list and agreements.
- Chris’s takeaways for other business owners that will be going through an exit in the near future.
// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment
Bio:
Chris Yates is an entrepreneur who acquires and manages portfolios of websites. He is the founder of Rhodium Weekend—an event for investing in online businesses, and he runs several online businesses including Centurica and Vision Group Management.
Chris started his online entrepreneurial journey in 2009 while running a digital marketing agency. He felt client work wasn’t scalable, and he had an urge to build his own assets. He also got a call from a former partner/mentor who wanted to partner with Chris on buying online businesses. They bought 10 or 12 websites that year, and Chris thought it was so much fun that he sold his marketing agency and started acquiring web businesses full time.
Interview Quotes:
09:28 - “What due diligence is, in short, is we look at the financials to make sure that the numbers and make sure they match what the seller or the representative claimed. And we also look at the sales and marketing channels to look for KPIs, trends, things like that, to look for risk in those.” - Chris Yates
19:39 - “What I did was, I wanted to figure out, ‘What is the model was for the aggregators?’” - Chris Yates
28:13 - “There were these things happening behind the scenes, with investors and board members, that made us think that not everyone was clued in. And that was a big red flag.” - Chris Yates
32:47 - “It’s more about, what is the cash flow we’re pulling from this business, and what’s a reasonable multiple on that? And that’s the valuation we had in our mind.” - Chris Yates
43:10 - “We started to really think about who that buyer would potentially be.” - Chris Yates
53:51 - “We took our initial LOI. We started with half of what we were willing to except to give ourselves some breathing room.” - Chris Yates
59:24 - “Credit to my buyer. He was awesome. We had regular weekly meetings to keep communication going. That was key. We were communicating through this whole process.” - Chris Yates
Links and Resources:
The 5 Intentional Growth™ Principles (5 Videos to Help Clarify Your Vision)
Intentional Growth™ Financial Assessment
You can also reach out to me via email at rtansom@arkona.io, or on my LinkedIn.