The Weekly: Edition #71 - November 13th, 2020
The Messy Marketplace
"This was the greatest limiting factor on acquistion price. I could absolutely have negotiated a higher purchase price from a different buyer, but me walking away [post close] was a non-starter for many." - Josh Pigford
Most details behind the typical private equity transaction are by definition, well, private - except for the price. This week, we came across a wonderful piece by Josh Pigford that gives a rare glimpse behind the curtain into a seller's mentality and reflection on selling his company. The piece is worth highlighting due to the rich insight into what the features of the deal were (besides just the price) as well as the qualitative priorities of the players involved.
Having written a book on how messy the small business marketplace environment can be, we've seen all kinds of transactions consummated between buyers and sellers, each with nuanced differences in seller motivations and buyer requirements. Each flavor of buyers comes with its own set of priorities, risks, and requirements for sellers.
Some buyers are willing to "pay up" on paper with all kinds of earnouts for the seller and heavy amounts of leverage. Other buyers are motivated by longer timelines and will desire that sellers stay on for a longer, slower transition. Some buyers will simply buy a business for the people and get rid of the product or buy the product and get rid of the people. The combinations of requirements and priorities are truly endless.
Sellers, on the other hand, are as unique as the underlying business being sold.
Some want the 'highest price' and are willing to jump through hoops (earnouts, transition agreements, seller notes, rolling equity forward, etc.) to achieve their desired outcome. Some may just want surety of close and a minimum amount of guaranteed compensation for the business and are willing to accept a lower purchase price. Some sellers care more about their team post close than others. Some sellers want to be involved on a post-close basis depending on who the buyer is.
In Pigford's case, he was 1) not willing to stay on post-close, 2) wanted a clean transaction, and 3) desired a guaranteed minimum payout at close. Some of these priorities were obvious deal breakers for typical private equity buyers. Thus, it took the right 'fit' to consummate the transaction.
With the incredible number of combinations of priorities and motivations on both sides of the table, it isn't far off to say that each transaction in the SMB space is a minor miracle. At Permanent Equity, every one of our transactions is bespoke in the sense that we work with sellers to achieve a mutually beneficial outcome where all interests are aligned around the long term success of the business. Our advice to sellers and buyers is simple: if you are up front about priorities (price, deal structure, post-close operations), this will eliminate wasted time on both sides of the table and lead to a better fit for buyers and sellers in the long run.
"I sold Baremetrics" (Josh Pigford)
+ "So, why did the details start making sense? Why sell at all? Especially after we’ve had some of our best months of growth ever. Something I started coming to grips with was not only what fulfills me (making things), but also what I’m actually good at. Over a decade ago, after selling TheAppleBlog to Gigaom and staying on board for a couple of years to keep growing it, I decided to move on. In an email to the company about why I was leaving, Om Malik referred to me as a “starter” and that term has always really resonated with me. I absolutely love starting things (as is made painfully clear in this list of everything I’ve ever started)."
How Apple built its own chip empire and gave Intel the boot (The Hustle)
+ "But a 3rd (and highly consequential) deal has defined Apple’s mobile product road map: the acquisition of P.A. Semi for $278m in 2008. Per tech analyst Ben Thompson, P.A. Semi secured the talent and IP “that would undergird [Apple’s] A-series of chips, which have powered every iPad and every iPhone since 2010.”"
U.S. properties with foreclosure filings on the rise as pandemic remains a threat to economy (Attom Data)
+ "ATTOM Data Solutions, licensor of the nation’s most comprehensive foreclosure data and parent company to RealtyTrac (www.realtytrac.com), a foreclosure listings portal, today released its October 2020 U.S. Foreclosure Market Report, which shows there were a total of 11,673 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — in October 2020, up 20 percent from a month ago but down 79 percent from a year ago."
Many businesses thought they were insured for a pandemic. They weren’t. (Freakonomics)
+ "No physical damage, no insurance reimbursement. Why should you care? Small businesses employ nearly half of American workers. Even before the pandemic, many small businesses only had a few weeks’ worth of cash on hand, if that. Many small businesses have already gone under, with more to follow. How will the insurance industry — and the government — respond to this crisis? And why wasn’t this pandemic insured? That’s what we’ll try to find out today on Freakonomics Radio."
The future of the shopping industry (ICSC)
+ "According to the findings of the Envision 2020 project, shopping centers are on their way to becoming true e-commerce participants, through increasingly sophisticated websites, onsite digital interfaces with consumers, and mobile communications to shoppers within the mall and beyond its boundaries. Conversely, e-commerce retailers — from Bonobos to the mighty Amazon.com with its new pop-up stores — are rolling out brick-and-mortar stores in an effort to solidify their brands and curate their product assortments. As we look to the future, a hybrid form of commerce is emerging, one in which shoppers move seamlessly between the physical and digital worlds of retailing as they research products and make purchases."
The Jason and Scot Show on US Retail Census Data (Link)
"Paul Bucchioni is Branch Chief and Scott Scheleur is a Supervisory Survey Statistician, both with the Retail Indicator Branch, Economic Indicators Division of the U.S. Census Bureau. In this interview, Paul and Scott walk us through the real sales data products that the US Census publishes and gives us advice about how to interpret the data.
Two metal-detector enthusiasts discovered a Viking hoard. It was worth a fortune—but it became a nightmare. (The New Yorker)
+ "Scanning the environs of King’s Hall Hill, the men suddenly picked up a signal on their devices. They dug into the red-brown soil, and three feet down they started to uncover a thrilling cache of objects: a gold arm bangle in the shape of a snake consuming its own tail; a pendant made from a crystal sphere banded by delicately wrought gold; a gold ring patterned with octagonal facets; a silver ingot measuring close to three inches in length; and, stuck together in a solid clod of earth, what appeared to be hundreds of fragile silver coins. The find had all the hallmarks of a hoard—the term used by archeologists to characterize a collection of valuable objects that was deliberately buried or hidden, usually with the idea that it would later be retrieved."
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