It’s a rewarding feeling when Harbour Club members successfully buy or sell a business using the strategies we teach in the Harbour Club course. It’s great knowing that others can learn from our experiences and grow together. Today, I want to share the story of a Harbour Club delegate named Paul and how he successfully used multiple strategies, and made some mistakes along the way, to close his first deal.
When Paul joined the Harbour Club in 2018, he had been a financial analyst for 20 years. Now, I have to say, he ignored one of the Harbour Club’s general guidelines—avoid brokers at all costs. He was searching for a business in the manufacturing and engineering industry because, having a background as a financial analyst, he believed raising capital for companies in that industry would be easier. He started a conversation with a broker who told him about a UK-based manufacturing business that provided copper fiber-optics products for the networking and data communications industry. The business had customers in the private sector, but what really interested Paul was that the biggest customer had been NATO, for three years in a row.
Determining Motivations
The previous owners of the business were a father and son duo. The father had a large construction business in Kenya, pulling 20+ million in revenue, the father’s primary focus. The father had purchased the fiber-optics manufacturing business for his son, who had zero interest in owning a business. After several years of the father trying to convince the son to invest his time in the business, they agreed it was time to sell.
Paul determined that the father and son’s motivation for selling was that they wanted a quick turnaround so the son could continue with his interests, and the father could return his focus to the construction business in Kenya. The business had been listed for about six months when Paul came into the picture with the broker. As I mentioned before, avoid brokers at all costs. Business brokers can be on the buy-side or the sell-side of a transaction. They’re usually incentivized because they receive a percentage of what you pay for the business, which means they are not great negotiators.
Paul admitted later that his biggest roadblock in closing the deal was dealing with the broker who refused to move the asking price—no surprise there. It takes two people to do a deal, and a broker is a third party that gets in the way of building trust and rapport and will often interfere in the relationship you’re trying to create. The more people that are involved in that discussion, the less likely the deal will happen.
Thankfully, Paul was determined and got a little creative. He won the son over with daily phone calls to check in and build rapport. He communicated to the son that he didn’t know much about fiber optics, but he had a passion for the sector and wanted to learn as much as possible. He assured the son he could have the deal done within two weeks, and eventually, he convinced the son to bypass the broker and negotiate with him directly. The price they agreed upon was half of the starting price, which really upset the broker, to say the least.
On the day of the signing, Paul met the sellers at 10 am, and the father was having second thoughts. How did Paul convince the father to go through with the deal? It all came down to his patience and the rapport he had built with the son. The daily phone calls paid off. Their conversations allowed the son to get to know him properly and showed him that he was genuine and wanted to do the deal. Because of the rapport he had built, they signed the contract at 11 pm the same day. Paul’s patience and confidence helped him snag his first deal.
The Deal Structure
Paul used a Harbour Club strategy called deferred payments to buy himself some time. He structured the deal as 50% upfront and with the other 50% deferred for six months. Paul gave the father and son the cash in the bank, leaving enough behind for some working capital. Paul also gave him a deferred payment over a 6-month period that would effectively be paid for from the profits of the company.
Paul gave the father and son this simple structure: some cash now, a bit of cash over time and a bit of cash from the future profits. The father could return his focus to his construction business, and the son could pursue his interests. Everyone walked away with exactly what they wanted. The net result was the deal got done, and it was the right deal to get done. Great job, Paul!
If you’re ready to Go Do Deals, check out my book and find out how you can get in on the action and close your first deal like Paul.
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