Selling a Business: What Owners Need to Know Before Going to Market with Blake Johnson (Ep. 7)

Thinking about selling your business someday? The decisions you make years before a transaction can have a major impact on value, buyer interest, and your options when it’s time to move on.

What separates a smooth transaction from a frustrating one? And what can business owners do today to prepare for a future sale?

In this episode, Jon Meyer sits down with Blake Johnson, President of SealedBid Marketing, to discuss the business sale process from preparation through closing. They explore why owners should start planning years before a transaction, how buyers evaluate risk, and the importance of building a strong management team. Blake also explains common deal challenges, valuation considerations, working capital, quality of earnings reports, and how advisors can help owners align personal goals with financial outcomes. 

The conversation also covers current buyer activity and what sellers should expect in today’s M&A market.

Key takeaways:

• Why reducing owner dependence can increase buyer confidence and improve business value
• How customer concentration and supplier reliance can affect valuation during a sale
• Why assembling advisors years before a transaction can improve outcomes and preparation
• How deal terms often matter as much as purchase price when evaluating offers
• Why quality of earnings reviews can uncover issues before buyers gain negotiating leverage

And more!

 

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Watch us on YouTube at https://www.youtube.com/watch?v=brOlgiMNBqo.

 

Connect with Jon Meyer:

• BGM
• LinkedIn: Jon Meyer
• Email: jmeyer@BGM360.com
• Schedule a Call

Connect with Blake Johnson:

• LinkedIn: Blake Johnson
• Website: SealedBid Marketing
• Email: bjohnson@sealedbid.com

About Our Guest:

For nearly two decades, Blake Johnson has worked closely with sellers, buyers, and advisors to successfully guide M&A transactions in the lower middle market.  He guides clients in their exit and succession planning strategies to optimize outcomes and maximize value.

Before joining SealedBid, Blake earned his undergraduate degree from the University of St. Thomas in St. Paul, MN, and gained Sales and Marketing experience with public and start-up companies.  He also holds a Master of Business Administration with an emphasis in corporate finance from the Carlson School of Management at the University of Minnesota.

When not at work, Blake enjoys a busy family calendar, weekends at the cabin, and the occasional round of golf.

 

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Transcript

Blake Johnson: You as the owner or the, you know, leader of the business needs to make sure that the, the company continues to perform and, um, you know, your day job isn’t, isn’t overshadowed by the transaction itself.

Jon Meyer: It sounds like you named off a lot of fairly sophisticated buyers though, so the seller has to have a good team.

Blake Johnson: Business owners should be thinking about selling their business even as early as the day they start it.

Welcome to Mastering the 360 Mindset with Jon Meyer from BGM. Join us as we explore ways to make the most out of your wealth, health, and time, unlocking opportunities for balance and lasting success.

With insights from Jon’s years of experience and guest experts, you’ll gain the tools to design a life that works on your terms. Now, onto the show.

Jon Meyer: Welcome to our show. Today I have with us, uh, one of my partners at BGM, Blake Johnson. Blake is the president of a BGM company, Seal Bid, which works, uh, with mergers and acquisitions.

Jon Meyer: And I thought it would be fun to have Blake on today to talk more about what happens when business owners decide enough’s enough and I need to get out. So with that, I’d like to introduce Blake. Welcome to the show, Blake.

Blake Johnson: Yeah, thanks, Jon. Appreciate being here and look forward to a good discussion.

Jon Meyer: Yeah, let’s start with the easy stuff.

Jon Meyer: Um, there is a lot of discussion in the day, um, about exit planning versus mergers and acquisitions. Can you describe f- for us what the difference is between those things? Because they are very different.

Blake Johnson: Yeah, I, you know, I think, um, you know, as Seal Bid, where we position ourselves in the marketplace as, you know, one of the execution type entities when a business owner is committed to a sale process.

Blake Johnson: So, uh, business broker, investment bank, uh, typical, uh, you know, terminology for firms like ours, business intermediary, facilitator. Uh, where the succession planning piece comes into play is definitely with firms like ours and others that specialize in the planning process. So it’s everything that business owners can do in advance to either set the table for a successful sale, ready their company to create options in a sale process, and otherwise, you know, specifically in family or entrepreneur-led businesses, create a transition plan that will result in whatever goal those business owners are looking to accomplish.

Jon Meyer: You’re the execution phase.

Blake Johnson: Yeah. Yep. So then once, um, you know, the strategic team and, and the business owner has, you know, put their plan in place, hopefully in advance, sometimes on very short notice, they would hire a firm like ours to package the company for sale, meaning initial diligence, you know, questions, strategic opportunities, really building a sales piece around the strengths of the company that’s, you know, used on a confidential basis.

Blake Johnson: And then, uh, you know, our, our job is to outreach to applicable prospective acquirers, whether they be strategic, financial or other, to meet those owners’ goal and ultimately drive that process to a successful transaction.

Jon Meyer: To that point, most people may think this process is a fairly fast process, but I think you and I both know that doesn’t always happen.

Jon Meyer: Talk about the timeframe from two perspectives. One is what actually has to happen and how long that takes, but secondly, when should a business owner be starting to think about this? ‘Cause I think that’s where people kind of, in my opinion, are, are a little off base. They probably need to think about it sooner than they actually do.

Blake Johnson: Yeah. Yeah. You know, I think any advisor, whether they be in the investment banking side or, or CPA or wealth or attorney, uh, you know, they’re gonna say business owners should be thinking about selling their business even as early as the day they started. You know, thinking about the process, what it’s gonna take to drive value.

Blake Johnson: But, you know, in a more practical sense, we say, you know, two to three to five years in advance of, you know, a desired timeline. Obviously, life happens, situation change. But, um, you know, in an ideal scenario- Uh, business owners are doing the things to create either value or continuity in a transaction well in advance of, you know, pulling the trigger in that effort.

Blake Johnson: And, you know, to your, your first part of your question, once you have made the decision, “Hey, I’m ready to sell. I’m ready to engage advisors to make a transaction happen,” yes, uh, y- you hear stories about unsolicited offers that, you know, can get done in a sh- in a shorter timeframe, but even, you know, at that offer stage in today’s world, you’re looking at 60 to 90 days of due diligence, legal drafting, negotiation, if it, if it still needs to be accomplished.

Blake Johnson: And so, you know, a whole process can take six months to a year, depending on how many buyers you approach in, in, again, that outreach phase, how many discussions and inter- you know, how much interest there is. It’s routine for us to, you know, generate six, seven, 12 offers, and it, it, it’ll take a month just to get through to, you know, who is the correct party.

Blake Johnson: And so allowing yourself to have that timeline and understand that, you know, you’ll, there’ll be a lift alongside the day job of operating and, and hopefully, you know, a positive direction and trend of, uh, your existing business, it’s, it’s definitely an undertaking that, you know, planning and, and time in advance helps make go smoothly.

Jon Meyer: Step back to that comment you made about they should be thinking about this two, three, four, five years early When they start to think about it from that perspective, they’re probably gonna have a lot of issues in their business they gotta fix to make it more valuable. Can you talk about the, you know, two, three, four drivers that they should fix typically that make it more valuable if they have that kind of time?

Blake Johnson: Yeah. Um, you know, and I’ll even change the lens a little bit because, you know, we work, again, call it lower middle market, typically companies that are below 100 million of, of top line revenue, family-held or entrepreneur-led businesses versus those run, um, you know, more on in the financial, whether it be private equity or larger corporate entities.

Blake Johnson: You know, fixes is a word that sometimes, you know, gets business owners’, you know, hair up. It’s, it’s not necessarily fixing, but if you look at, you know, a business transaction as an investment, as an, a, a financial decision from a buyer’s lens, what business owners can do two, three, five years in advance is really start to de-risk that transaction, which ultimately will drive value.

Blake Johnson: Yes, um, you know, there’s some direct things like making sure that the owners of the business have a strong management team that can support the business on a go-forward basis. It’s, it’s often that a business owner will, will come to us and say, “Well, I wanna be done the day of closing,” and that business owner is responsible for, you know, substantial or even all the book of business of the company.

Blake Johnson: And so thinking about empowering your team, maybe even augmenting and, and improving your team, um, so that you as owners can step back from the business is a, is a major threshold for entrepreneurs. As well as, you know, just identifying what is driving revenue and profit profitability. Is there customer concentration?

Blake Johnson: Is there reliance on a, a very delicate supplier base? Those types of analysis and, and considerations, again, using a, a buyer’s lens on how confident am I that this revenue stream and, and this profitability will continue into the future, are all big pieces that owners can get, you know, ahead of well in advance of the actual transaction process.

Jon Meyer: To that point, let’s say they have some things like that that they need to work on I’m not asking for a hard number, but generally how much does that improve their actual sale price then?

Blake Johnson: Oh, it can be quite substantive. And you know what? We’ve seen, um, businesses that have a couple large, very a- attractive customers and, um, you know, upon first meeting, it takes a minute for the owners to understand that, you know, yes, you’ve got blue chip customers and just doing business with that entity is a positive thing, but if they have a 90-day out or a 30-day out or no written agreement that’s supporting that business, you know, it’s, it’s very much, uh, viewed by buyers, uh, in that lens in that it’s, you know, substantively risky, especially if there’s somebody key that’s controlling the relationship that may not continue.

Blake Johnson: So getting in from, you know, that example specifically, you look at specific agreements that can be… can or cannot be put in place, you know, in writing. You look at servicing customers differently so there’s not one key relationship that’s managing the entity, whether it be on, on your side or, or the customer’s side.

Blake Johnson: You look at diversification in a totally different way. So instead of accepting more business at a lower margin from your top customer, maybe your, your emphasis to your team is to diversify to, you know, higher margin, smaller pieces of business across a wider portfolio of customers and, and that takes time, obviously, to flow through.

Blake Johnson: And again, um, ultimately, you know, to your question, what the value outcomes can be is, you know, it… I’ve s- I’ve seen swings, you know, of several multiples. Um, you know, in our world we use a multiple of earnings typically for value and, and, um, you know, the discount factor for customer concentration can be quite significant.

Jon Meyer: So you’ve touched upon, uh, the front end a little bit. It sounds like people should get you involved a lot sooner than they do.

Blake Johnson: Yeah. And you know, I, I would say- Definitely, you know, your transaction advisor is, is a great resource, but we generally recommend that business owners start to meet with an entire transaction team.

Blake Johnson: So somebody like yourself, Jon. They’re definitely their, their legal team. They often… Business owners often have a great corporate, you know, attorney that they’ve, you know, maybe have grown the business with that, that may or may not have transaction expertise, but likely has access to other individuals v- via their firm or their network, their CPA, their, their lenders to the extent that they have, you know, debt.

Blake Johnson: All of those professions and, and strategic advisors to business owners have a seat at that table years in advance of, of that decision because as I’m sure you’ve covered in, in presentations, you know, there’s a lot that can be done to either drive value or make sure you keep more of the cash in a transaction.

Jon Meyer: Yeah. One thing that I’ve seen that I think you’d agree with is, um, sometimes us financial advisors are either a great help

Jon Meyer: or we get in the way. And, uh, yeah, you smile, right? The answer to that really is we, we help if we can help the end client understand what the sales price, um, what they kinda need to retire on so that they don’t over, uh, get overly excited and try to run the price up. The other side is we could also set a, help them set a price in their head that’s so high they can’t ever get it.

Blake Johnson: Yes. Yes. I

Jon Meyer: think you’d agree with that.

Blake Johnson: It’s often that, um, you know, we meet with, uh, business owners who know exactly what their company’s worth because it’s the number that their wealth advisor told them they need to retire on. Um, so yes, I think, um, you know, there is that dynamic, and I think that’s why having the team even meeting collectively in, in, you know, at appropriate points in time will help align everyone into what is ultimately, you know, the goal.

Blake Johnson: Like you said, it’s, it’s the goal of your profession and, and definitely, you know, those that I’ve mentioned to ultimately create success for tho- those business owners and clients. And, um, you know, I think everybody brings their unique perspective and expertise to creating that success.

Jon Meyer: If I could encourage any of our listeners to do anything, it’s get everyone in the room for two hours when you first think about it.

Jon Meyer: I know a lot of people think, “Oh, I don’t wanna spend the money on pulling everyone together,” but it’s, it’s the smart thing to do.

Blake Johnson: Yes, definitely.

Jon Meyer: So let’s, let’s say they’ve engaged you and you’re to that point where you’re starting to look at some offers. Uh, you and I have had this conversation a little bit, but there is a, there’s two, two pieces to every transaction, and I’ll just run through this quick, but- One is price and the second is terms.

Jon Meyer: And you and I have had this conversation. I think most people come to the table wanting the highest price they can get. If I were a- at the table, I’d want terms.

Blake Johnson: Right.

Jon Meyer: Why don’t you unpack that a little bit? ‘Cause I think you and I kind of agree on this, but-

Blake Johnson: Yeah, you know, we, we use the The term, you know, the phrase, uh, you know, cash is king.

Blake Johnson: Um, so when you’re looking at a business transaction, yes, uh, price is often where business owners head start is, you know, “I want X amount for my company.” But, you know, as, as I briefly noted, you know, in a, in a competitive process, you know, done confidentially to a, a variety of buyer types, and ultimately, you know, done well where there’s multiple interested parties, it’s, it’s routine that we see the highest purchase price offer, uh, not selected as the one to move forward with.

Blake Johnson: So yes, when it comes to terms, businesses trade obviously for, for cash or cash at closing for, for stock consideration and a purchaser that, you know, is, is immediate. But they’re, they’re very frequent that businesses will also trade with sometimes seller, seller notes or seller paper or seller financing.

Blake Johnson: Um, there’s times where there’ll be structure based on business performance going forward, and each of those categories can have several different nuances to them. It can be a note that’s, you know, extended with a balloon. It can be a, an earn-out that is, you know, based on lofty goals, uh, it, or it can be an earn-out based on, you know, very achievable, uh, metrics as opposed to, you know, through things that, uh, an exiting owner can’t control.

Blake Johnson: And so, you know, we often advise sellers that, you know, what you know for sure is, is the cash at closing that you receive, you’ve received. So if, to the extent you start to agree to ach- trying to achieve a larger total sale price by introducing structure, um, you know, it, it, it’s definitely a room for pause and consideration.

Jon Meyer: Yeah. To that point, what are two or three terms that you always, always advocate for that you really like that, that are, are the most helpful for people to think about?

Blake Johnson: Outside of a, a totally cash deal, which, you know, we’ve been fortunate enough, uh, through competition to drive, you know, numerous, uh, transactions that way, we often look at, uh, a strategic approach where you- sellers can maximize value by being acquired by a strategic, or, you know, a strategic can be a competitor, but it could also be a complimentary company in the same space or same vertical market.

Blake Johnson: And- Oftentimes with some structure in an acquire in that case, you can get a note from a larger entity, from a publicly traded company or, or the like. And, you know, those do become, you know, extremely highly successful as far as collection. You can typically get better than market interest rate terms. And so, you know, when I look at kind of secrets to driving value and structure, it’s, you know, uh, seller, seller notes aren’t great.

Blake Johnson: You’re not getting the cash at closing, but who’s signing that note? And what’s the probability that, you know, things go smoothly to collect? Um, you know, other things in structure that we often spend a quite a bit of time on is, you know, it doesn’t show up in purchase price and how that’s divided, but it shows up in cash that the selling group gets to keep and, and that’s working capital.

Blake Johnson: So w- businesses typically trade with, with what’s called a, you know, working capital amount, often calculated by a, a normalized average or a target based on the analysis of each side. But what that means is, uh, you know, the seller keeps their cash, they’re responsible for their debt, but they also give with the transaction, the accounts receivable inventory, and the buyer assumes the, you know, the current liabilities.

Blake Johnson: And often a business owner who has started a company or has grown a family business is operating without debt, is operating, you know, typically a little looser in their use of cash or controls on inventory. And then when they start to do the analysis on what, on what’s really going with the business, and we obviously do it quite a bit in advance as well, you know, there’s, there’s real dollars there.

Blake Johnson: So i- back to your question about things to prepare in advance, if you can start to really scrutinize those numbers with your financial advisors, it’s ultimately putting more cash in your pocket at the, you know, closing date by leaving less in the business. And it, it has to work. The business has to function.

Blake Johnson: Um, it will be scrutinized, but that is a value lever outside of purchase price that we’ve seen, you know, sometimes be, you know, quite, quite substantial.

Jon Meyer: So stepping back a sec- When i- in a, in a deal, if a buyer’s interested, they’ll give you a letter of intent, and you guys start going down the road with due diligence.

Jon Meyer: What are a couple things that the business owner does to blow up deals?

Blake Johnson: Yeah.

Jon Meyer: Or to, you know, kinda just screw up the whole thing because of, for whatever reason. Could be emotions, could be anything.

Blake Johnson: Yeah, there’s definitely road bumps in the process. So there’s things that can totally terminate, you know, a, a, a proposed transaction between two parties.

Blake Johnson: There’s things that can cause renegotiation. And it… And really what, um, you know, a business owner needs to focus on when they’re to that stage is, you know, you’ve assembled a team of advisors to assist you in that process, you, you as the owner or the, you know, leader of the business needs to make sure that the, the company continues to perform and, um, you know, your day job isn’t, isn’t overshadowed by the transaction itself.

Blake Johnson: The other piece of, of a deal, you know, that’s, that’s not obvious, like a, you know, an error in financials or a massive change in the performance of the business, um, is just time. You need to be prepared to get through this process, deliver reports quickly, again, alongside your team, so that the momentum of the transaction continues.

Blake Johnson: Uh, we’re working on, you know, a couple different deals, uh, right now that have extended, you know, instead of 90 days from letter of intent to closing, it’s, it’s well beyond that. And in one case, you know, the performance of the company, for no fault of, you know, the owner, has been impacted by macroeconomic events, by, uh, local events, and, you know, th- those have created challenges along the way that could’ve, you know, the deal could’ve been done before any of that occurred.

Blake Johnson: So, um, you know, emotions, as you called out, are always going to be there. We try to make sure some of those thresholds are crossed in ad- in advance of going to market. But it’s, you know, it’s, it’s an emotional and it’s a large, you know, transaction and an event in anyone’s life. Um, and so, you know, those things need to be at the forefront and managed alongside all the, the finance as well.

Jon Meyer: You mentioned the speed issue be- And I, I can appreciate that. I’ve seen deals fall apart because they lose momentum.

Blake Johnson: Mm-hmm.

Jon Meyer: More often than not. It’s always amazing to me. When you look at it from the perspective of the, uh- owner after the fact, is there anything that they say after the fact where they’re, they’re like, “I wish I would’ve done something different”?

Jon Meyer: Are there things that they know they screwed up even five years earlier that they could have done different, um, where you’re like, “That’s a key learning,” like, “I should share that with my next deal”?

Blake Johnson: Yeah. You know, I think, um, some of it is fleshed out in the process. You’re, and, and you may not get those insights until you’re really, you know, trying to get a, a deal across the finish line.

Blake Johnson: One of them I can think of is, you know, uh, you know, considering, considering your lending partners and any financing structures you have in place, um, and how those relationships and whatever vehicles are in place will react or trigger during a transaction. Um, some of that can be mitigated quite easily.

Blake Johnson: Some of it, um, you know, is totally dependent on what the buyer’s intent and, and purchase structure looks like, but, um, definitely have seen, you know, sellers get through everything and, and realize there, there was a quite easier path. Um, you know, the other piece would be really looking at that management team, and, um, you know, if you’re going to agree as a business owner to a transaction where you’re helping in transition and you’ve promoted or elevated in the process team members, uh, you know, that may, uh, you know, drive value to you post-close by their performance.

Blake Johnson: Uh, sometimes, um, you know, I think there’s rose-colored glasses on, you know, who’s truly ready to step up into those seats. And, and really we always promote if we’re going to take that lens to market that those individuals are a part of the process and, and have been performing the duties we’re, we’re presenting at the company prior to the sale.

Jon Meyer: You bring up an interesting point, though. Um, sales happen differently. Sometimes they’re internal to a team that is already there. Sometimes they’re external. Sometimes they’re to private equity, whatever. Um, which ones are the most successful? What do you, what do you think you’ve seen in the past from that perspective?

Blake Johnson: That’s a tough one because I think business owners’ goals vary so much. Um, you know, if you told me that you had a, a business owner acquaintance or client or friend that said, “You know, I want max value, and that’s all I care about,” I’d say that’s pretty unique. Uh, most business owners, again, in the lower middle market, have some other driving factor in, you know, what would be an ideal transaction or to complete their, their goals in a sale, whether that be, you know, elevation of the team or continuing their le- you know, their company legacy or…

Blake Johnson: We even had a deal where, um, you know, the business as itself stood well and was very much wanted, um, but there… It was in a smaller town with some brand-new fancy real estate that was also owned by the business owner, and, and that business owner’s goal was to have a buyer that purchased that real estate, and therefore committed to that smaller community as opposed to one that would lease for a period of years and, and likely move.

Blake Johnson: And so, um, you know, that, that goal reduced the value of the, the business, now made up with some of that value in, in the sale of the real estate, but it also reduced the buyer pool because there are, you know, significant considerations, uh, from business acquirers to whether or not they’re interested in real estate.

Blake Johnson: It’s viewed as a totally different investment and, and I would say, you know, more often than not, it’s not desired to be purchased alongside the business. So when you say, you know, “What’s the most successful outcome?” You know, I can highlight transactions like that one that preserved a legacy and empowered the management team in a small community.

Blake Johnson: I can highlight, you know, huge multiple deals where, you know, we were way too conservative, and their, their wealth advisor was way too conservative in what they needed, and now they’ve got too much money in retirement, right? But, uh, I think it’s really about aligning as a business owner with your strategic advisory group on what, what truly is your ideal transaction and, and what components will make that come to fruition, uh, from the buyer’s perspective.

Blake Johnson: Obviously, more price is always gonna be good, but there’s often, you know, other dynamics at play.

Jon Meyer: To that point, though, how do you have that discussion? I’m just curious more than anything.

Blake Johnson: Yeah. ‘

Jon Meyer: Cause it feels like sometimes an owner brings what I would call a deal killer to the table, to your point. Like, if you wanna stay in the small town, you might have a whole f- lot fewer buyers.

Blake Johnson: Mm-hmm.

Jon Meyer: So how do you have that discussion with them?

Blake Johnson: Well, our firm, and I think, you know, others like us- That we do valuation work. And I, you know, I’d say some firms are better than others at including that conversation in value. Is it, it’s more than just a corporate finance or, or a financial exercise when you come to, um, you know, any method of valuation.

Blake Johnson: It’s really understanding the company alongside the numbers and that, that goal perspective alongside the numbers. So we try to initiate that even before engagement to make sure that we’re presenting what, you know, would be reality. And, you know, generally speaking, a deal killer from our perspective should be known by everybody, um, you know, well before you’re receiving offers

Jon Meyer: Interesting.

Jon Meyer: Uh, one thing too that I wanted to bring up because we’re seeing this more and more in the marketplace, and I think, uh, you’re the perfect guy to ask about this, is that more and more companies, even small deals, are wanting a quality of earnings report. Mm. Sometimes that rankles the owner a little bit, but could you just give us a brief description of what that is and why it’s important, and when do you think it need, it needs to be done for sure versus it’s just a nice to have?

Blake Johnson: Yeah. Well, I think, um, the emergence of the quality of earnings report, often abbreviated to Q of E, is, you know, largely driven by, you know, a kind of a wholesale change in the diligence effort on the buy side of the table over the last 10 years. They’ve been common in larger transactions as part of lender requirements and other, um, diligence requirements, but they’ve become more and more common in, you know, lower middle market deals.

Blake Johnson: And to the extent now, uh, people like myself, the s- sell side advisors, are recommending them in advance of going to market so that when you get through, uh, a process and you’ve selected a buyer, and they hire their own financial diligence company to, to, to run this report, there’s no surprises. And, you know, to your question of what is it, you know, I think concisely stated, it’s, it’s a, it’s a buy side or historically had been a buy side diligence, um, report driven by CPA firms to, or and, and other financial advisors to, you know, provide proof of performance on the historical financials.

Blake Johnson: So, um, generally accepted accounting principles, revenue recognition, off balance sheet liabilities, um, you know, true, you know, earning, earnings defense if there’s adjustments and things like that. So it covers the full gam- gamut to give confidence ultimately, you know, again, driven by sometimes lenders or investors in what’s been demonstrated in the historical financials.

Jon Meyer: Have you ever seen a company, um, do a Q of E and decide not to sell and to fix things and then come back to the table?

Blake Johnson: Yes. You know, I think, like I stated, the sell-side Q of E, either in a full fashion or in a piecemeal, a la carte fashion, has become more and more common. And, you know, I would say it’s often done in, you know, somewhat quick succession as far as if there’s something identified that needs correcting.

Blake Johnson: If there’s something identified that’s, you know, more of a, a substantial lift, then yes, I think it, it ultimately, the decision to delay a, a transaction process is going to be based on, you know, the owner’s appetite for that time window versus the, you know, potential discount in, in value that would’ve been, you know, otherwise attained.

Blake Johnson: So I think they’re a great tool. I think there’s a great way to use them, um, you know, as a small business in an a la carte fashion. Uh, your financial advisor, you know, that’s hopefully helping you with your internal financials in either a compilation review or audit format will have, you know, the, the insight to target analysis that will be, you know, very directly tied to value.

Blake Johnson: And, um, when you generally acco- you know, uh, run into this in the, in the sale process is once you’ve selected your buyer. And so if a buyer brings in these, you know, these, uh, material changes in your financials at, at what is the 11th hour, you’re running out of leverage to negotiate. You’ve selected somebody, they’ve found something, you’ve told all your other interested parties that, that you’ve, you’ve chosen one party, and so getting ahead of that is, you know, is just a, a very proactive negotiation tool as well.

Jon Meyer: Interesting So you’ve been at this a long time?

Blake Johnson: Yeah. Uh, 16, 17 years. Yeah.

Jon Meyer: Yeah. What’s one, one thing you, uh, wish you knew 10 or 15 years ago?

Blake Johnson: You know, I try to learn every day, Jon. Uh, you know, that’s why it’s nice to work with people like you. You know, I think for me, um, there’s, there’s kind of two facets of the job in the, you know, corporate finance, financial analysis, the s- you know, the, the stuff, um, that you’re learning all the time.

Blake Johnson: I learned through a fire hose over the course of, of working with Seal Bid, and, uh, had a great mentor in, in the founder, Jerry. But, you know, I think where I’ve seen my skills and, and pieces where, you know, I’m trying to shift my growth is in really the psychology of business owners, of entrepreneurs, of, you know, really understanding the driving factors for the individuals that, you know, I serve as, as my client.

Blake Johnson: And, um, as you stated, you know, a lot of deals have hurdles sometime in the process. Hopefully, they don’t, you know, blow a deal up. But I will say, you know, a lot of, a lot of those hurdles are driven by emotions and reactions. And so, you know, getting better and getting, you know, k- that psychology aspect more than the math or finance, um, you know, has, has alwa- has helped me and, uh, it’s something I continue to work on

Jon Meyer: It’s interesting you’d say that because when young people come to me now and ask about financial planning, I tell them to focus on that more than a lot of us coming out of school did.

Jon Meyer: So that is, that is interesting. So what have I, as we kind of close up shop here, what, what have I not asked? Is there anything I haven’t asked you’re like, “God, he really should know this stuff”?

Blake Johnson: You know, I think, uh, we’ve covered a lot of great topics. You know, one of the areas that we haven’t talked about is, you know, what’s happening with buyers right now.

Blake Johnson: And, um, you know, I would say it’s, it’s contin- you know, and again, there’s been, in the last five years, there’s been, you know, tariff changes, there’s been interest rate changes, there’s been now wars and, and other macroeconomic or, or geopolitical events that impact businesses. But, um, you know, what we haven’t talked about is buyers.

Blake Johnson: And right now, there is a substantial amount of activity on the, on the buy side of M&A and the buy side of transactions, whether that be corporate entities that have devoted resources to growth through M&A as opposed to, you know, just organic or, or new, net new, um, greenfield growth. Uh, we’ve seen a, a lot of companies across segments with more reactive and, you know, distilled interest with professionals to get deals done, um, than in years past.

Blake Johnson: And we’ve seen a, you know, a huge growth in the financial cate- you know, financial buyer category. There’s always been, you know, a, a, a plethora of private equity groups. We’re seeing now more family offices that are specifically choosing to do business M&A and other financial buyer categories that really, you know, I think offer business owners and entrepreneurs less of the rigid, um, maybe, uh, stigmatized private equity model and more of a humanistic approach to the transaction, their team members, and the future of the business.

Jon Meyer: To that point, it sounds like you named off a lot of fairly sophisticated buyers, though. And so, so the seller has to have a good team.

Blake Johnson: Definitely. Yeah, I, you know, the buyer is going to bring sophistication to the transaction, whether it’s them or it’s their, you know, who they hire to help them get the deal done.

Blake Johnson: And, um, as I stated, kind of related to the Q of E, it’s, it’s mo- diligence process is more robust, and there are more tools available even on the smaller transactions than ever before. And I, that’s not gonna change. It’s gonna continue to grow with the adoption of AI and, and other resources that are at, you know, people’s fingertips.

Blake Johnson: So I think as business owners, you have to have that same lens and approach when, when preparing your business.

Jon Meyer: Just because it’s my lane a little bit, um, I’m gonna ask the interest rate question. Have higher interest rates, uh, changed the buyer pool and, or the price that people are getting?

Blake Johnson: Uh, you know, I think the cost of capital and the cost of debt, you know, there’s a lot of studies and, and papers on, you know, the larger transactions and the ebbs and flows of, you know, kind of the broader global M&A market or, you know, North American market.

Blake Johnson: I’ll speak anecdotally from, you know, our experience working with businesses, again, in that 100 million of revenue or less category. You know, we haven’t seen the pricing pressure, uh, created by rising interest rates. Generally speaking, the transactions in this size include a, you know, a quite substantive piece of, of equity.

Blake Johnson: They’re not over-levered, and therefore, you know, the cost of that debt is somewhat absorbed in the whole, um, cost of capital calculation by buyers. We’re seeing more equity just in general come into transactions in this size because buyers are looking to buy and build as opposed to buy and flip or buy and slash.

Blake Johnson: Um, and we’re in, you know, that corporate, that corporate, uh, buyer category or the strategic buyer category is largely using either an established piece of debt or balance sheet cash, and so therefore, you know, is not impacted by, you know, that, those interest rates in, in that specific transaction.

Jon Meyer: So since you brought it up, I can’t leave it sit.

Jon Meyer: Uh, you said there’s more equity being used. What should sellers expect at this stage in 2026 for the percent of the deal in cash versus the percent of the deal in equity?

Blake Johnson: Yeah, I mean, it, it definitely depends, you know, who the buyer is, what the, the metrics of the business are. Um, you know, you get into considerations about whether this is, you know, a well collateralized, meaning, you know, the, there’s a piece of debt that is matching collateralization against assets or whether it’s a, it’s a cash flow lending situation.

Blake Johnson: All of those will impact the bank’s willingness to lend. It will impact subordinated lenders, SMEs lenders, um, you know, secondary lenders’ willingness to c- to come in behind the senior and, and for how much. Uh, so it can vary. But, you know, we’re generally seeing, um, proposals no lower than 25% and sometimes over 50% of the deal being in, in, um, you know, cash equity into, into the tr- the purchase.

Blake Johnson: And a lot of that is driven by what the next purchase is for, and, and what the buyer’s roadmap i- you know, tends to be. If they’re, if they’re looking to buy a business and, and quickly grow it through additional acquisitions, you know, if they’re, if this is the platform or the first step in that process, you know, leverage, uh, and the leverage ratios will be considered in a broader picture of, of what’s to come

Jon Meyer: Interesting.

Jon Meyer: So typically less cash then?

Blake Johnson: Uh, more cash in that scenario.

Jon Meyer: More cash in that scenario?

Blake Johnson: Yeah. Buy the, buy the first business at 50% and then look to leverage that cash flow as well as additional debt at a, you know, higher ratio into the next one.

Jon Meyer: Okay. Interesting. That’s why I always ask, “What haven’t I asked about?”

Jon Meyer: ‘Cause I learned something. Well, as we, as we close up here, why don’t you tell us how, if people wanna get ahold of you, they can get ahold of you.

Blake Johnson: Yeah. Um, so sealedbid.com is our website. My email address is bJohnson@sealedbid.com, and I’ll make sure that, you know, it’s included in some of the materials for this, uh, distributed.

Blake Johnson: But, um, you know, I look forward to engaging any, uh, of your viewers in even initial conversations about that planning process. And if there’s not something that myself or our firm can do, we’ll be sure to point people in the right direction.

Jon Meyer: I appreciate that. And with that, I wanna thank everyone for, uh, uh, listening.

Jon Meyer: As usual, if you wanna see more of our content, go to bgm360.com, and feel free to like this episode if you would. Have a great day.

 

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