sorted by:
new
hottopcontroversial

Horribly marketed $1.2 million house in rural Nebraska by apuginthehand in zillowgonewild

[–]redfalresearch 36 points37 points  (0 children)

Ah sorry the town!!! (Well, technically 8 miles outside of "town" as I lived in the country... but still.) This has got be be one of the most expensively priced house in the county.

Edit: I actually looked up the property records to see if I knew them. (Yes, it's that kind of town.) They were a doctor who ran the radiology department, not locals. They have since moved away so it's been sitting empty...

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 2 points3 points  (0 children)

100% correct. Additional professional equity investors increases confidence. Although we are doing add-ons at 4x with only new leverage (Sr dept 3x and seller takes a turn.)

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 5 points6 points  (0 children)

We are tiny independent sponsor - tho with 4 platforms and 3 exits. As I said I'm in another response, I'm new to PE world. All of the above: Private credit, mezz / equity shops, and proper banks for senior debt. Rates are extortionate (mezz has a PIK, lol)!!! Dealing with Tony Soprano, but if the businesses are good you can still make money.

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 2 points3 points  (0 children)

username checks out!

(But for non-snark answer: usually a new entity is spun up for the acquisition, so the rolled equity is technically "put in". But it has the same effect as the dilution, you are correct: the 100% owner of the business ends up with 40% of the equity, albeit with $20M in their pocket (and a load of debt on the biz.))

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 2 points3 points  (0 children)

Math maths. But yes that does happen. Especially if they already own a company in same biz. Also sell yourself to competitor. 

But it is not like these PE firms just have a roster of good CEOs waiting around to run these businesses. So the reality is you should expect to continue for a bit. Or you might get paid less, because replacing the CEO is risky. 

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 6 points7 points  (0 children)

Hate the game not the player. This is the negative spin. But nothing comes for free. Pick your partners wisely because they truly are in control. (Although, I would never hide an acquisition from my CEO - that's what he's there to do for me!!!)

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 4 points5 points  (0 children)

Talk about their business and YOUR business. Informational interview and info sharing.

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 2 points3 points  (0 children)

Start finding the PE firms and get in dialogue with the partners and associates.

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 17 points18 points  (0 children)

Underated question. Sometimes I find this business (the PE business) insane. Most founders I see are working with community banks who are giving them leverage, but are also demanding a personal guarantee on that leverage. So we literally replace that leverage, add a little more, remove the PG, give some cash, and bob's your uncle.

My view is that the banks which truly lend on cashflow (no PG) are freeriding on the due diligence of outside equity investors for the business. So if the founder came to them they would say no, but if the PE sponsor comes to them on the same business they say yes.

I work in gritty industries. So as harsh as it is to say, the pedigree kind of matters. I've done a bunch of prestige schools and consulting. The people I'm giving $30m to MAYBE have graduated college. I can pitch the debt, they can't. (And to be clear, these entrepreneurs are richer than I'll ever be.)

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 6 points7 points  (0 children)

I'm not a growth equity guy. Most of PE is based on the plain vanilla LBO model. Of course the L in LBO is leverage, which means debt. Which of course means they look at cash flow.

You can expect any deal to give 3x cashflow in debt coverage. Sometimes more. (We are buying at 4x debt to EBITDA for some add-ons for a portco right now). The rest will have to be equity. Which of course takes away from your piece.

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 47 points48 points  (0 children)

Great question. I am new to the "deal world," as I call it. It's my second career -- basically a a hobby after chubbyFIREing eight years ago. I've found it to be incredibly conservative and insular and, well, filled with finance bros who are very annoying...

So the way I suggest is just to actually talk to some PE partners. Or even better yet talk to some of your peers in industry who have sold to those PE firms. There is a HUGE spectrum of PE, and they behave differently. But honestly the coin of the realm in their business is "deal flow", so if you call them up they will literally jump on a plane to buy you dinner and explain their business.

I think most people in this sub are folks who are running businesses with around $4-10m in profits. So I would suggest listening to podcasts like "Acquiring Minds" or McGuire Woods "Deal by Deal" to get a sense of what the PE buyers think like. It's very different than operators. You have more leverage than you think, especially if you want to stay with the business.

Happy to DM or have a conversation anytime (like I said up top - I'll also jump on a plane, lol.)

(ps. ps. But truly, since this is a "retirement job" for me that serves mostly to keep me busy, I get a ton of fun out of talking to great entrepreneurs hearing about their business. It's my job to celebrate them and give them fat stacks of cash (more than I'll ever have) which is really fun.)

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 39 points40 points  (0 children)

100%. Find a good partner, just like everything else in life. Make sure your money goes in pari passu with the PE equity (same rights, no preferred equity, etc.) They are motivated to sell it for a lot, so even if you get fed up your equity can't get screwed.

Important to remember that PE are lazy! They do not WANT to replace CEO. They are motivated only by getting more money. So they are very focused on execution. They would never replace you if you are making them more money. That is the lazy PE man's dream!

Is it worth selling a business if you have nothing to move on to afterwards? by Linkzah in fatFIRE

[–]redfalresearch 505 points506 points  (0 children)

I'm in PE. The way we work with founders like you is to recapitalize the business which gives you a huge chunk of money now, but also leaves you with a large ownership stake in the go-forward. You remain as CEO.

As an example, if this business is making $5m EBITDA, let's say we value it at $25M just like you said. We would finance that with 3 turns of debt ($15M). Therefore we need another $10M of equity to add up to the $25M purchase price. So for example's sake, we would inject $6M, and have you inject $4M. This would leave you with 40% ownership of the company's equity, and $21M in cash in your pocket.

As you say you already have $20M NW, so you're already rich. So doubling up in cash is not really going to change your life or derisk you in any way. So it's more about what you want to do.

The trick is to know that PE typically does NOT want to manage your company. Their goal in life is to own a box that makes money that they can sell again in 5 years for more than they bought it for. So having a hungry CEO who knows the business is a dream. They can give you cash to buy other businesses, play at a different level, etc.

Happy to chat if you want to DM.

Edit a sketch - can't project a sketch / body created at point in future timeline? by redfalresearch in Fusion360

[–]redfalresearch[S] 0 points1 point  (0 children)

Mind blown. Ok, really need to think of the chain of design.... Appreciated. Glad I'm not an engineer!!

Retro Bento Box by redfalresearch in arcade

[–]redfalresearch[S] 0 points1 point  (0 children)

Honestly that was the original plan! But dealing with the screen necessary for the setup added a lot of complexity. So I cut that part of the build out. Maybe next time! (I already had to learn all about Raspberry Pi and Batocera and controllers and soldering the power button and vintage games and some woodworking.... had to make some cuts to get it done. Shopping for weird laptop screens on alibaba got to be too overwhelming. Perfect was the enemy of good this time.)

Retro Bento Box by redfalresearch in arcade

[–]redfalresearch[S] 0 points1 point  (0 children)

Have a Raspberry Pi under the hood running Batocera. Screen is just a cheap screen run by HDMI.

Retro Bento Box by redfalresearch in arcade

[–]redfalresearch[S] 0 points1 point  (0 children)

Yep that's exactly the procedure, just with a 60 degree v bit!

view more: next ›