November 25, 2024 • 19 mins
Unlock the secrets of roofing industry acquisitions with the South Florida M&A Advisors Podcast! Ever wondered why larger companies are snapping up smaller, locally recognized roofing firms like Earl Johnston Roofing? Join our host, Russell Cohen, as he explores the strategic mindset of add-on acquisitions. We delve into the personal motivations behind such sales, including the seller's health considerations and the perfect timing for transitioning business ownership. Learn how maintaining a brand's local identity can be a game-changer in achieving economies of scale and ensuring a smooth leadership transition.
Gain valuable insights into the complex world of valuing and selling a roofing company in Florida. This episode sheds light on the seller's decision to prioritize immediate cash over potentially lucrative earnouts and seller financing, with the aim of securing a swift exit. We highlight the crucial role of having expert legal and professional support in place, alongside the lessons learned about the importance of patience and experienced advisement. Don't miss this opportunity to expand your understanding of successful M&A strategies in this dynamic sector.
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Episode Transcript
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Speaker 1 (00:02):
Welcome to the South Florida M&A Advisors Podcast,
your trusted M&A team.
Here's your host, Russell Cohen.
Speaker 2 (00:13):
Hi everyone and welcome back to the South
Florida M&A Advisors Podcast.
You know, russell, you'rebecoming somewhat of an
aficionado in the sales ofroofing companies, specifically
because going back a few monthsago you sold I think it was $100
million roofing company up inPalm Beach, I believe it was and
now, most recently, you justdid another roofing company $6.5
(00:39):
million deal.
So I thought we'd dig into thatand talk a little bit about the
process and the experience.
So, first of all,congratulations, thank you.
Speaker 3 (00:49):
Good news.
You know, 10, 15 years ago, Ididn't expect to, as roofing
started to become a vertical inmy business, and I'm not really
trying to make it a vertical.
It just so happens that theselast two assignments are roofing
, happens and that these lasttwo assignments are roofing, and
now.
Speaker 2 (01:07):
Now I'm like, okay, well, let's start working with
contractors more often, becausethere's a big demand for it.
So why not?
Absolutely?
So what?
What made this roofing companyan attractive, an attractive
acquisition?
Talk a little bit about thedeal and then we'll kind of go
from there Talk a little bitabout the deal and then we'll
kind of go from there.
Speaker 3 (01:26):
Sure, so it wasn't as large as the first roofing
company that we did in May.
This is what is called anadd-on acquisition.
So the company that acquiredEarl Johnston Roofing was Dunes
Point Capital.
They have made multipleinvestments.
(01:46):
They made their platform, theirfirst move into the space, with
another company at a highermultiple, just like we did with
the larger roofing company.
And then what ends up happeningis they start acquiring smaller
roofing companies for economiesof scale because they got their
large platform investment andnow they go around, they're
buying companies in florida.
Basically, at this point theythey bought one in Orlando, they
(02:06):
got one in Hollywood.
So, as they find the rightinvestments, they will do add-on
acquisitions and typically theadd-on acquisitions are they
typically range from 1.5 millionEBITDA and probably can go, you
know 2, 3, 4, 5 million andthose are your add-on
(02:27):
acquisitions.
And when a company is making,you know, 10, 7 to 10, 15
million even, that's yourplatform acquisition.
That's the first entry of theprivate equity group into the
space with bigger multiples, butthis was an add-on acquisition
at a lower multiple that we soldthe larger roofing company.
(02:48):
Equally as important, still aschallenging as ever, different
issues, but we were able to getto the closing table eight
months after the LOI.
Speaker 2 (03:02):
So I know you were representing the seller in this
transaction.
Obviously, right, correct.
I did have the engagement.
So I'm curious, though, on theother side, on the buyer side,
when this company is acquiringthese smaller roofing companies
now, are they bringing them intothe fold of their brand, or did
they then continue operatingthese companies under the
previous branding of the othercompany?
How does that typically work?
(03:23):
Companies under the previousbranding of the other company
how does that typically work?
Speaker 3 (03:24):
They they are keeping the name the same, they run
them independently under undercorporations, but they they have
a mother company and they theyput the roofing company under it
.
So so yeah, they're notrebranding because you, you just
bought a company that's been inthe industry for 40 years, you
(03:48):
know has a recognition of of thename, especially with this
particular seller, very strongbrand recognition in Broward
County of high integrity, youknow, great performance and work
, deliver.
You know old time Floridabusiness owner.
So it would behoove the privateequity group to start making
major changes, especially to the, you know, to the name of the
(04:10):
company.
Speaker 2 (04:11):
Yeah, it makes sense.
I've heard of that companybefore Earl Johnson.
Is it Earl Johnston or Johnson?
Yeah.
Speaker 3 (04:17):
Earl Johnston Roofing .
There's no.
Speaker 2 (04:19):
E at the end.
Speaker 3 (04:20):
There's no E at the end.
Speaker 2 (04:21):
So in this particular case because I know you deal
with a lot of businesses thatbuild the business up and then
they get into their close toretirement years and then they
negotiate these types of dealsIn this particular case, what
was the deal with the seller?
How did they decide it was theright time to sell for them?
Talk a little bit about howthey led up to this decision to
(04:42):
ultimately sell the business.
Speaker 3 (04:44):
Seller was in his mid-60s, yeah, uh, and he
started having developmenthealth issues nothing
life-threatening, but to thepoint where you don't want to be
on the roof.
Yeah, you know, you know being,you know those go out on jobs
and gets involved.
He's not laying the shing, helets the subcontractors do that.
(05:06):
But you know so there has to bean exit.
And you know, and they say ifyou sell your business past 70,
time is not that important toyou, you are the business and
you become the legend in yourown business.
So the perfect right time inhis mid-60s, because you've got
to transition one to two years.
(05:27):
In his case, he agreed to stayon for one year, which is a very
rare circumstance that privateequity lets an owner get out
within one year.
Normally it's a two-yearcontract and if you're trying to
, if you're trying to buy time,your multiple will suffer
because it gets risky when theowner leaves.
(05:47):
So he did get a one-yearcontract and he will exit one
year, probably next November 1stof 25.
Speaker 2 (05:59):
There's got to be a lot of intricate knowledge
within the mind of an owner of abusiness, for I don't know know
how many, how many years,probably decades he owned the
business and built the business.
Um, so yeah, there's a lot inthere that the new ownership
would need to access.
You would think, yeah, you got.
Speaker 3 (06:13):
You got to find someone within the company has
to step up or they have to gooutside and have someone fill
the shoes of that owner who youknow is the name on the company,
is the person.
So, yeah, very challenging.
But in this scenario, you know,roofing companies are very
(06:34):
thought after now because it'sin a roll up phase.
So this private equity feltthey got, they paid a good price
, but also they, you know theydidn't want to lose the
opportunity.
No, doubt.
Speaker 2 (06:47):
So after a year, once he's out, do they still
typically communicate with himafter the fact?
Like, like, is he?
Is he out after that, or Isthere something in the contract?
That allows access to him tosome degree in the case of
issues A lot of times the ownersdon't completely withdraw from
the business.
Speaker 3 (07:04):
They might, you know, might be on a consultant basis.
They might go into sales, theymight take a break and then come
back because they, you know,they missed the action and they
don't want to keep their mindout.
Speaker 2 (07:19):
What am I going to do with my life now?
Right, in this case, you know,I think, the action, and they
don't want to keep their mindout.
What am I going?
Speaker 3 (07:20):
to do with my life now.
Right, in this case, you know,I think he'll make a clean break
, but will also offer you knowif they run into issues, he'll
I'm sure he'll be a great, greatperson, like he always is.
He'll help them and help try tosolve some problems.
You know.
Speaker 2 (07:38):
So you mentioned eight months start to finish for
this deal.
Essentially, Were there anyunique challenges?
I'm sure that things came upover the eight months.
What were some of the uniquechallenges that you faced while
negotiating this deal?
Speaker 3 (07:52):
Yeah.
So one of the very uniquechallenges Seller was a C-corp
when he started the company andhe converted to an S Corp and
there is a five year trail thatyou can't sell your business or
you'll have a taxation, doubletaxation.
So when you convert from a C toan S Corp and you sell within
(08:14):
that five years you're going toget taxed at corporate tax and
then capital gain.
So double taxation, that's nofun.
That's no fun, especially for aseller.
They're counting every dollar.
So the deal was scheduled toclose in May.
We ran into some issues with theattorney as the attorney's
(08:35):
house was declining along theway in the transaction and so it
got really slow.
And then we end up you knowpeople, people going out of town
, people are traveling, thisthing got delayed and we were
going to try to close after hewas past the five years uh,
which then became September, um,and the deal got slowed down.
(08:57):
Because they own the property.
We had issues with the privateequity group give a security
deposit or not.
We ran into a lot of otherissues and the attorneys just
weren't ready with the contractnegotiating the contractyear
employment agreement thatexceeded the deal that we sold
in the year prior.
(09:25):
So a company that was 10 timessmaller got paid a higher salary
than the CEO that sold a verylarge roofing company.
It was incredible.
They wanted the business thatbadly yeah sounds like it.
Speaker 2 (09:42):
What were some of the key factors that led to the
success of this deal?
Speaker 3 (09:48):
Well, you had a motivated buyer that wanted the
company.
They were focused, even thoughthey felt that the seller was
challenging because he wasunaware of the of the m a
process.
If you're really under, this isthe first time, and probably
last time, you ever go throughit, so it's you know.
You, the seller decided to takea very slow process to
(10:11):
understand it.
It wasn't a rush to the closinguh, motivated, a motivated uh
buyer that wanted the company.
Timing in the seller's life wascorrect, even though you know
(10:31):
he kept saying I can get more, Ican get more.
But I didn't think they wantedto go through the whole process
because you know Earl and hiswife who are owners of the
company.
You know Earl and his wife whoare owners of the company.
The process is so draining andthey uncover everything to the
minutiae in the quality ofearnings and in the due
diligence.
I don't think that you know shewanted to go through it again.
(10:58):
It's just so tolling on yourlife because you're running a
company at full speed and thenyou're trying to sell your
company and you're trying tofind documentation from 20 years
ago that you know you neverthought you would, ever didn't
even know you had.
So the legal due diligence youknow the accounting and legal is
so, so tough on a seller.
You just want to get the dealdone.
(11:20):
You don't want to go through itagain.
Speaker 2 (11:23):
You know, it just came to me, russell, where I
think I recognize other thanseeing trucks go around with
Earl Johnson Johnson roofing.
I fairly certain that I had himon the Good Neighbor podcast
when I first started a year anda half ago.
I got to check on that, but Iremember doing an episode and it
sounds familiar Earl Johnson,so I'm going to look into that.
Yeah, I think I've met Earl and, if I recall correctly, he's a
(11:45):
really, really, really good guy.
Speaker 3 (11:46):
Yeah, he knows his stuff, he performs very well, he
knows the industry and you know, when you're changing your roof
, I mean this is your house,this is your largest asset.
When you're changing your roof,I mean this is your house, this
is your largest asset you wantto make sure you have a
reputable company that will dothe job Right.
You know there's warranties onon the on on the roofs, you know
(12:09):
.
So you, you don't.
It's not something you want totry to cheap out on.
And he and he's not thecheapest and he's not the most
expensive, but he's he's fair,he's honest.
He's not the most expensive,but he's fair, he's honest.
You know you're getting one ofthe last remaining good old boys
of Florida of tremendous highintegrity in the industry.
(12:30):
No doubt about it.
They don't make people like himanymore.
Speaker 2 (12:34):
What about the valuation process?
How did you guys land on the$6.5 million price tag on this
deal?
Speaker 3 (12:43):
So the seller was we had about a 2 million EBITDA we
were working with and we weregetting offers for hire.
But it was important for him toexit quicker and so the higher
valuations were coming in withearnouts and seller financing,
(13:04):
higher rollover equity, and hewas trying to get the most cash
at closing.
So in this scenario, at the$6.5 million price, it was a 94%
cash out at closing and a 6%rollover equity, so that was the
least riskiest part.
He wanted to get a deal whereyou know he did not want to be
(13:27):
working for a new owner and beheld to numbers.
You know, because he's neverreally been held to numbers for
himself.
You know he just worked hardand did numbers.
So he didn't believe inearnouts.
He didn't believe in sellerfinancing, even though that
would have given him a biggernumber.
He just didn't want to be toldby another company that you had
(13:48):
to do so much in revenue peryear.
So he ended up picking thehighest down payment with the
least risk of money and what wasimportant to him was to be able
to exit the business in a year.
So if he was able to stick itout for two years, he probably
would have gotten more moneybecause two years would have
(14:12):
mean more to the private equity.
He could have gotten earnouts.
He could have gotten just abigger number.
So he chose you know, time wasimportant to him to sacrifice a
little bit on the price.
So we had about 20 offers alongthe way because we brought it
to market in January of 23.
(14:32):
And we put it under an LOIFebruary of 24.
So there were many, many offersalong the way but nothing
really changed, nothing reallysatisfied, until we hit that 94%
cash out position.
So that's important to thesebusiness owners.
In reality they'll never cashout 100%.
(14:55):
It's always going to be part ofa rollover equity.
There's going to be earnouts toreach certain price levels.
In this scenario it was purelybased on how much money I can
get to the closing table and notrisk my money in the purchase
price.
Speaker 2 (15:11):
So important to have a professional such as yourself
throughout this process.
Obviously, this is a long,drawn out process in most cases
and so much goes into it and youbring so much knowledge to the
forefront and you really lookout for the best interest of
your clients and what theirgoals are.
In this particular case, likeyou said, his goal was to cash
(15:32):
heavy on the end of the sale andget out quicker, and you made
that happen for him.
You've done quite a few ofthese deals throughout your
career.
I'm sure that each deal teachesunique lessons, things that you
learn.
What's one lesson that you drewfrom this deal that you can
share that could help potentialother business owners that they
can keep in mind, I guess, whenthey're considering selling
(15:53):
their business?
Speaker 3 (15:57):
It took a lot of patience in this deal because we
had a lot of things that we didnot expect In this scenario.
He did not hire a M&A attorney.
The attorney got the deal done,okay, but it did take longer
than we wanted to, because timeis the evil of all deals.
(16:19):
The attorney was a probateattorney, but also had his hands
in acquisitions.
So, but also had his hands inacquisitions.
So when you're dealing with alaw firm on the other side, that
is a true M&A law firm.
I felt the other law firm was alittle more superior to his law
(16:40):
firm because he was more of aone-man company, Okay.
So I think it's important thatthe seller realizes you go to a
M&A law firm for representationbecause the buyer is a
professional buyer and they'regetting very large law firms
(17:00):
that know the M&A process.
So that is so important becausewe probably could have probably
could have been finished acouple of months earlier.
As I mentioned, the the attorneydid run into some health issues
, Um, and so that kind of umslowed it down.
(17:21):
He wasn't great with technology.
He got the job done, Uh, I Ijust had to just, you know,
remain calm and let it happen.
You know, there was one timethat we thought that maybe the
seller might switch because thegentleman almost removed himself
from the deal.
So we got to that point but buthe was able to stay in the deal
(17:46):
and get it done.
But he was able to stay in thedeal and get it done.
So, yeah, the lesson to belearned is get a M&A law firm,
because they're on the otherside, is even a bigger law firm
on the pie side.
So and we worked really wellwith them.
They did a great job.
They wanted to get the dealdone.
(18:06):
They were not impeding the deal, it just took more time.
Basically.
Speaker 2 (18:11):
Well, good stuff, russell.
Again congrats on the new deal.
I'm waiting for the thirdroofing company.
The Trifecta is coming down thepike.
I know it's in the works.
Speaker 3 (18:20):
Yeah, we don't have any roofing engagements on the
books yet, but we do have alarge plumbing contractor, so
hopefully in the next six to 12months we'll be talking about
that.
Speaker 2 (18:30):
Perfect Sounds good, brother, always a pleasure and
thanks everyone for tuning inand we will catch you all next
time on the next episode of theSouth Florida M&A advisors
podcast.
Everyone, take care, have agreat day.
Speaker 1 (18:44):
Thanks for listening to the South Florida M&A
Advisors Podcast.
For more information, visitSouthFloridaMAcom or contact
954-646-7651.
Welcome to the South Florida M&A Advisors Podcast,
your trusted M&A team.
Here's your host, Russell Cohen.
Speaker 2 (00:13):
Hi everyone and welcome back to the South
Florida M&A Advisors Podcast.
You know, russell, you'rebecoming somewhat of an
aficionado in the sales ofroofing companies, specifically
because going back a few monthsago you sold I think it was $100
million roofing company up inPalm Beach, I believe it was and
now, most recently, you justdid another roofing company $6.5
(00:39):
million deal.
So I thought we'd dig into thatand talk a little bit about the
process and the experience.
So, first of all,congratulations, thank you.
Speaker 3 (00:49):
Good news.
You know, 10, 15 years ago, Ididn't expect to, as roofing
started to become a vertical inmy business, and I'm not really
trying to make it a vertical.
It just so happens that theselast two assignments are roofing
, happens and that these lasttwo assignments are roofing, and
now.
Speaker 2 (01:07):
Now I'm like, okay, well, let's start working with
contractors more often, becausethere's a big demand for it.
So why not?
Absolutely?
So what?
What made this roofing companyan attractive, an attractive
acquisition?
Talk a little bit about thedeal and then we'll kind of go
from there Talk a little bitabout the deal and then we'll
kind of go from there.
Speaker 3 (01:26):
Sure, so it wasn't as large as the first roofing
company that we did in May.
This is what is called anadd-on acquisition.
So the company that acquiredEarl Johnston Roofing was Dunes
Point Capital.
They have made multipleinvestments.
(01:46):
They made their platform, theirfirst move into the space, with
another company at a highermultiple, just like we did with
the larger roofing company.
And then what ends up happeningis they start acquiring smaller
roofing companies for economiesof scale because they got their
large platform investment andnow they go around, they're
buying companies in florida.
Basically, at this point theythey bought one in Orlando, they
(02:06):
got one in Hollywood.
So, as they find the rightinvestments, they will do add-on
acquisitions and typically theadd-on acquisitions are they
typically range from 1.5 millionEBITDA and probably can go, you
know 2, 3, 4, 5 million andthose are your add-on
(02:27):
acquisitions.
And when a company is making,you know, 10, 7 to 10, 15
million even, that's yourplatform acquisition.
That's the first entry of theprivate equity group into the
space with bigger multiples, butthis was an add-on acquisition
at a lower multiple that we soldthe larger roofing company.
(02:48):
Equally as important, still aschallenging as ever, different
issues, but we were able to getto the closing table eight
months after the LOI.
Speaker 2 (03:02):
So I know you were representing the seller in this
transaction.
Obviously, right, correct.
I did have the engagement.
So I'm curious, though, on theother side, on the buyer side,
when this company is acquiringthese smaller roofing companies
now, are they bringing them intothe fold of their brand, or did
they then continue operatingthese companies under the
previous branding of the othercompany?
How does that typically work?
(03:23):
Companies under the previousbranding of the other company
how does that typically work?
Speaker 3 (03:24):
They they are keeping the name the same, they run
them independently under undercorporations, but they they have
a mother company and they theyput the roofing company under it
.
So so yeah, they're notrebranding because you, you just
bought a company that's been inthe industry for 40 years, you
(03:48):
know has a recognition of of thename, especially with this
particular seller, very strongbrand recognition in Broward
County of high integrity, youknow, great performance and work
, deliver.
You know old time Floridabusiness owner.
So it would behoove the privateequity group to start making
major changes, especially to the, you know, to the name of the
(04:10):
company.
Speaker 2 (04:11):
Yeah, it makes sense.
I've heard of that companybefore Earl Johnson.
Is it Earl Johnston or Johnson?
Yeah.
Speaker 3 (04:17):
Earl Johnston Roofing .
There's no.
Speaker 2 (04:19):
E at the end.
Speaker 3 (04:20):
There's no E at the end.
Speaker 2 (04:21):
So in this particular case because I know you deal
with a lot of businesses thatbuild the business up and then
they get into their close toretirement years and then they
negotiate these types of dealsIn this particular case, what
was the deal with the seller?
How did they decide it was theright time to sell for them?
Talk a little bit about howthey led up to this decision to
(04:42):
ultimately sell the business.
Speaker 3 (04:44):
Seller was in his mid-60s, yeah, uh, and he
started having developmenthealth issues nothing
life-threatening, but to thepoint where you don't want to be
on the roof.
Yeah, you know, you know being,you know those go out on jobs
and gets involved.
He's not laying the shing, helets the subcontractors do that.
(05:06):
But you know so there has to bean exit.
And you know, and they say ifyou sell your business past 70,
time is not that important toyou, you are the business and
you become the legend in yourown business.
So the perfect right time inhis mid-60s, because you've got
to transition one to two years.
(05:27):
In his case, he agreed to stayon for one year, which is a very
rare circumstance that privateequity lets an owner get out
within one year.
Normally it's a two-yearcontract and if you're trying to
, if you're trying to buy time,your multiple will suffer
because it gets risky when theowner leaves.
(05:47):
So he did get a one-yearcontract and he will exit one
year, probably next November 1stof 25.
Speaker 2 (05:59):
There's got to be a lot of intricate knowledge
within the mind of an owner of abusiness, for I don't know know
how many, how many years,probably decades he owned the
business and built the business.
Um, so yeah, there's a lot inthere that the new ownership
would need to access.
You would think, yeah, you got.
Speaker 3 (06:13):
You got to find someone within the company has
to step up or they have to gooutside and have someone fill
the shoes of that owner who youknow is the name on the company,
is the person.
So, yeah, very challenging.
But in this scenario, you know,roofing companies are very
(06:34):
thought after now because it'sin a roll up phase.
So this private equity feltthey got, they paid a good price
, but also they, you know theydidn't want to lose the
opportunity.
No, doubt.
Speaker 2 (06:47):
So after a year, once he's out, do they still
typically communicate with himafter the fact?
Like, like, is he?
Is he out after that, or Isthere something in the contract?
That allows access to him tosome degree in the case of
issues A lot of times the ownersdon't completely withdraw from
the business.
Speaker 3 (07:04):
They might, you know, might be on a consultant basis.
They might go into sales, theymight take a break and then come
back because they, you know,they missed the action and they
don't want to keep their mindout.
Speaker 2 (07:19):
What am I going to do with my life now?
Right, in this case, you know,I think, the action, and they
don't want to keep their mindout.
What am I going?
Speaker 3 (07:20):
to do with my life now.
Right, in this case, you know,I think he'll make a clean break
, but will also offer you knowif they run into issues, he'll
I'm sure he'll be a great, greatperson, like he always is.
He'll help them and help try tosolve some problems.
You know.
Speaker 2 (07:38):
So you mentioned eight months start to finish for
this deal.
Essentially, Were there anyunique challenges?
I'm sure that things came upover the eight months.
What were some of the uniquechallenges that you faced while
negotiating this deal?
Speaker 3 (07:52):
Yeah.
So one of the very uniquechallenges Seller was a C-corp
when he started the company andhe converted to an S Corp and
there is a five year trail thatyou can't sell your business or
you'll have a taxation, doubletaxation.
So when you convert from a C toan S Corp and you sell within
(08:14):
that five years you're going toget taxed at corporate tax and
then capital gain.
So double taxation, that's nofun.
That's no fun, especially for aseller.
They're counting every dollar.
So the deal was scheduled toclose in May.
We ran into some issues with theattorney as the attorney's
(08:35):
house was declining along theway in the transaction and so it
got really slow.
And then we end up you knowpeople, people going out of town
, people are traveling, thisthing got delayed and we were
going to try to close after hewas past the five years uh,
which then became September, um,and the deal got slowed down.
(08:57):
Because they own the property.
We had issues with the privateequity group give a security
deposit or not.
We ran into a lot of otherissues and the attorneys just
weren't ready with the contractnegotiating the contractyear
employment agreement thatexceeded the deal that we sold
in the year prior.
(09:25):
So a company that was 10 timessmaller got paid a higher salary
than the CEO that sold a verylarge roofing company.
It was incredible.
They wanted the business thatbadly yeah sounds like it.
Speaker 2 (09:42):
What were some of the key factors that led to the
success of this deal?
Speaker 3 (09:48):
Well, you had a motivated buyer that wanted the
company.
They were focused, even thoughthey felt that the seller was
challenging because he wasunaware of the of the m a
process.
If you're really under, this isthe first time, and probably
last time, you ever go throughit, so it's you know.
You, the seller decided to takea very slow process to
(10:11):
understand it.
It wasn't a rush to the closinguh, motivated, a motivated uh
buyer that wanted the company.
Timing in the seller's life wascorrect, even though you know
(10:31):
he kept saying I can get more, Ican get more.
But I didn't think they wantedto go through the whole process
because you know Earl and hiswife who are owners of the
company.
You know Earl and his wife whoare owners of the company.
The process is so draining andthey uncover everything to the
minutiae in the quality ofearnings and in the due
diligence.
I don't think that you know shewanted to go through it again.
(10:58):
It's just so tolling on yourlife because you're running a
company at full speed and thenyou're trying to sell your
company and you're trying tofind documentation from 20 years
ago that you know you neverthought you would, ever didn't
even know you had.
So the legal due diligence youknow the accounting and legal is
so, so tough on a seller.
You just want to get the dealdone.
(11:20):
You don't want to go through itagain.
Speaker 2 (11:23):
You know, it just came to me, russell, where I
think I recognize other thanseeing trucks go around with
Earl Johnson Johnson roofing.
I fairly certain that I had himon the Good Neighbor podcast
when I first started a year anda half ago.
I got to check on that, but Iremember doing an episode and it
sounds familiar Earl Johnson,so I'm going to look into that.
Yeah, I think I've met Earl and, if I recall correctly, he's a
(11:45):
really, really, really good guy.
Speaker 3 (11:46):
Yeah, he knows his stuff, he performs very well, he
knows the industry and you know, when you're changing your roof
, I mean this is your house,this is your largest asset.
When you're changing your roof,I mean this is your house, this
is your largest asset you wantto make sure you have a
reputable company that will dothe job Right.
You know there's warranties onon the on on the roofs, you know
(12:09):
.
So you, you don't.
It's not something you want totry to cheap out on.
And he and he's not thecheapest and he's not the most
expensive, but he's he's fair,he's honest.
He's not the most expensive,but he's fair, he's honest.
You know you're getting one ofthe last remaining good old boys
of Florida of tremendous highintegrity in the industry.
(12:30):
No doubt about it.
They don't make people like himanymore.
Speaker 2 (12:34):
What about the valuation process?
How did you guys land on the$6.5 million price tag on this
deal?
Speaker 3 (12:43):
So the seller was we had about a 2 million EBITDA we
were working with and we weregetting offers for hire.
But it was important for him toexit quicker and so the higher
valuations were coming in withearnouts and seller financing,
(13:04):
higher rollover equity, and hewas trying to get the most cash
at closing.
So in this scenario, at the$6.5 million price, it was a 94%
cash out at closing and a 6%rollover equity, so that was the
least riskiest part.
He wanted to get a deal whereyou know he did not want to be
(13:27):
working for a new owner and beheld to numbers.
You know, because he's neverreally been held to numbers for
himself.
You know he just worked hardand did numbers.
So he didn't believe inearnouts.
He didn't believe in sellerfinancing, even though that
would have given him a biggernumber.
He just didn't want to be toldby another company that you had
(13:48):
to do so much in revenue peryear.
So he ended up picking thehighest down payment with the
least risk of money and what wasimportant to him was to be able
to exit the business in a year.
So if he was able to stick itout for two years, he probably
would have gotten more moneybecause two years would have
(14:12):
mean more to the private equity.
He could have gotten earnouts.
He could have gotten just abigger number.
So he chose you know, time wasimportant to him to sacrifice a
little bit on the price.
So we had about 20 offers alongthe way because we brought it
to market in January of 23.
(14:32):
And we put it under an LOIFebruary of 24.
So there were many, many offersalong the way but nothing
really changed, nothing reallysatisfied, until we hit that 94%
cash out position.
So that's important to thesebusiness owners.
In reality they'll never cashout 100%.
(14:55):
It's always going to be part ofa rollover equity.
There's going to be earnouts toreach certain price levels.
In this scenario it was purelybased on how much money I can
get to the closing table and notrisk my money in the purchase
price.
Speaker 2 (15:11):
So important to have a professional such as yourself
throughout this process.
Obviously, this is a long,drawn out process in most cases
and so much goes into it and youbring so much knowledge to the
forefront and you really lookout for the best interest of
your clients and what theirgoals are.
In this particular case, likeyou said, his goal was to cash
(15:32):
heavy on the end of the sale andget out quicker, and you made
that happen for him.
You've done quite a few ofthese deals throughout your
career.
I'm sure that each deal teachesunique lessons, things that you
learn.
What's one lesson that you drewfrom this deal that you can
share that could help potentialother business owners that they
can keep in mind, I guess, whenthey're considering selling
(15:53):
their business?
Speaker 3 (15:57):
It took a lot of patience in this deal because we
had a lot of things that we didnot expect In this scenario.
He did not hire a M&A attorney.
The attorney got the deal done,okay, but it did take longer
than we wanted to, because timeis the evil of all deals.
(16:19):
The attorney was a probateattorney, but also had his hands
in acquisitions.
So, but also had his hands inacquisitions.
So when you're dealing with alaw firm on the other side, that
is a true M&A law firm.
I felt the other law firm was alittle more superior to his law
(16:40):
firm because he was more of aone-man company, Okay.
So I think it's important thatthe seller realizes you go to a
M&A law firm for representationbecause the buyer is a
professional buyer and they'regetting very large law firms
(17:00):
that know the M&A process.
So that is so important becausewe probably could have probably
could have been finished acouple of months earlier.
As I mentioned, the the attorneydid run into some health issues
, Um, and so that kind of umslowed it down.
(17:21):
He wasn't great with technology.
He got the job done, Uh, I Ijust had to just, you know,
remain calm and let it happen.
You know, there was one timethat we thought that maybe the
seller might switch because thegentleman almost removed himself
from the deal.
So we got to that point but buthe was able to stay in the deal
(17:46):
and get it done.
But he was able to stay in thedeal and get it done.
So, yeah, the lesson to belearned is get a M&A law firm,
because they're on the otherside, is even a bigger law firm
on the pie side.
So and we worked really wellwith them.
They did a great job.
They wanted to get the dealdone.
(18:06):
They were not impeding the deal, it just took more time.
Basically.
Speaker 2 (18:11):
Well, good stuff, russell.
Again congrats on the new deal.
I'm waiting for the thirdroofing company.
The Trifecta is coming down thepike.
I know it's in the works.
Speaker 3 (18:20):
Yeah, we don't have any roofing engagements on the
books yet, but we do have alarge plumbing contractor, so
hopefully in the next six to 12months we'll be talking about
that.
Speaker 2 (18:30):
Perfect Sounds good, brother, always a pleasure and
thanks everyone for tuning inand we will catch you all next
time on the next episode of theSouth Florida M&A advisors
podcast.
Everyone, take care, have agreat day.
Speaker 1 (18:44):
Thanks for listening to the South Florida M&A
Advisors Podcast.
For more information, visitSouthFloridaMAcom or contact
954-646-7651.
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