Attorney in LA, CA, focusing on M&A, securities matters, restructurings and recapitalizations, joint ventures and strategic alliances and corporate governance.
Los Angeles, CA, USA
Joined February 2010
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Recently I’ve seen a few horror story videos about SMB acquisitions gone wrong. As I watch, I’m shaking my head asking why all the mistakes were made and red flags ignored by buyers clearly motivated to make it work. If you work with experienced professionals (lawyers and accountants), you can at least avoid the obvious pitfalls and mistakes. Buying a business is risky enough even when you do everything right. @SMB_Attorney says it sounds self serving, but he makes a good point.
Admittedly it’s hard to budget good lawyers and accountants into a SMB deal, but you really need to do it. I always talk budget with my clients early on small deals and work to figure out how to get things done most efficiently. Even though we generally bill by the hour, we all want the deal to go right.
Also be a bit cautious about referrals that come from an organized network or group. They may be perfectly fine, but you really want to make sure you trust that the referrals are on your team. I saw a video the other day in which the buyer joined a club that provided the legal and accounting referrals, and they reported that “everything was fine” in due diligence. That raised my eyebrows, because lawyers don’t tell you everything is fine. They tell you what they reviewed, the implications of that review, and let you decide whether it’s fine. Made me wonder whether the professionals were more invested in closing a deal that got everyone in the club paid rather than in doing a good job.
PSA:
We’ve helped people buy nearly $2 billion of Main Street businesses since 2022.
Do not buy a business with highly leveraged debt unless you’ve fully grasped what that means and are prepared to make the full-time commitment to doing everything to make it work.
Buying a business as a side hustle is a recipe for disaster.
I think it’s the best path to wealth when done right.
But the key word is “right.”
You have to:
- Go all in
- Do your homework
- Use an experienced deal team:
- A bank and banker who has seen endless deals (talk to many)
- A financial accountant for QoE who fits the deal
- Insurance DD
- Industry experts
- Knowledgeable investors (never hurts for vetting and putting extra cash on the balance sheet)
- An experienced M&A attorney (self-serving, I know, but still true)
- Find a GOOD business (if you need a checklist of what makes a business “good,” we can put one together)
- MAKE SURE YOU CAN RUN THE BUSINESS… guys, we’ve built one of the fastest-growing law firms in the country at @smblawgroup, but I would blow up a construction business in a day
It’s great. I’m deeply convinced of the virtue of business buying.
But this is not a casual endeavor, and do not let anyone convince you otherwise.
You will lose a lot of money!
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There are a number of basic adjustments to EBITDA that need to be made, particularly in the SMB world. Fair comp to the owners needs to be added back, because the new owners will need to hire to replace the old owners or work themselves for fair comp. Related party leases also need to be adjusted up or down if not market. Also whatever personal expenses the owner runs through the business should be taken out, since the buyer isn’t going to keep paying for your yacht or country club membership. As you can see below, this has a dramatic impact on deal value and I’ve seen it blow up negotiations more than once.
A seller had been telling buyers his business generated $1.2 million in EBITDA. He had been saying that number for two years.
When the QoE team went in they found that his compensation was significantly below market rate and that he owned the building personally and charged the business a below-market lease. Neither was fraudulent. Both were real costs a new owner would absorb.
Normalized for both, EBITDA came in at $870,000.
The seller had believed his own number for so long the revision came as a genuine shock. Understanding what your business actually earns under a new owner is the most important question a seller can answer before going to market.
#QualityOfEarnings #MergersAndAcquisitions #BusinessAcquisition #TransactionAdvisory
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For everyone who says @elonmusk doesn't put his name on hospitals or university buildings, please take 7 minutes to watch this video. The guy lives in an Airstream trailer, catches a rocket booster taller than a 20 story building with chopsticks, and now invents a device to give a voice to people who can no longer speak. And that's only how he spends the first half of his week. This is how you change the world if you have the means. Incredible.
Through the VOICE trial, Terry is using his Neuralink implant to help fine-tune a brain-to-voice interface for himself and others who can’t speak. He trained the algorithm first by miming speech as best he could, then by simply thinking the words and hearing them come out in his own natural voice.
Powered by Grok Voice from @spacexai
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Sander Zagzebski retweeted
A 24-year-old Polish tennis player arrived in Paris last week ranked 114th in the world, with no sponsors, no guaranteed income, and no certainty she could even pay for her hotel room.
She had to win three qualifying matches just to enter the French Open main draw. Prize money is only paid at the end of the tournament, so a Polish sports drink brand quietly stepped in and covered her hotel bill.
Her name is Maja Chwalinska. And today, she plays in the French Open final.
Before this tournament, she had won exactly one Grand Slam main draw match in her entire career. She had battled depression so severe that in 2021 she couldn't get out of bed. She underwent knee surgery in 2022. She spent years grinding through small tournaments across Europe just to stay afloat.
Then she arrived in Paris, won three qualifiers, and kept winning. Zheng Qinwen. Elise Mertens. Maria Sakkari. Diana Shnaider. Nine straight matches. One set dropped.
She is now the first qualifier in French Open history to reach the final. The last time a qualifier reached a Grand Slam final, it was Emma Raducanu at the 2021 US Open. Raducanu won.
By simply making the final, Chwalinska has earned more prize money than her entire career combined. The runner-up cheque alone is $1.6 million. If she wins today, she takes home $3.25 million.
One week ago she couldn't pay for her hotel room.
Sander Zagzebski retweeted
Every fat loss client who comes my way gets a MASSIVE cookbook with 81 fat-shredding recipes.
I'm giving it away free for the next 24 hours...
To grab it, like this tweet + comment "SHRED" below and I'll DM it to you.
You gotta be following me to get it...
Sander Zagzebski retweeted
I’ve spent 10 years teaching math to machine learning engineers.
80% of university math is irrelevant to your actual job.
Luckily, I've created a FREE roadmap to teach you the 20% you actually need.
Like, retweet, and comment "roadmap" and I'll DM you the link.
Best analysis I’ve seen so far of this. The ship was obviously under power AND moving in reverse when it collided with the bridge. The crew had very little time to react. Very tragic.
The real mystery with the Mexican Navy tall ship ARM Cuauhtémoc isn’t what went wrong, we know the engine was likely stuck in reverse.
It’s why the tugboat wasn’t tied up.
I spoke with a New York Harbor pilot and a tug captain near the scene.
Here’s what we know 🧵👇
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Sander Zagzebski retweeted
I love meeting capital allocators who lock in as hard as founders.
Just talked to a VC who’s traveling constantly for 3+ weeks straight.
And not just the usual SF, LA, NYC circuit. He’s going to Sun Valley, Aspen, and Jackson Hole hunting for alpha.
This is how you win.
Happy New Year! Looks like 2025 is going to be a busy year for capital markets and M&A professionals across a variety of sectors.
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Breaking News: A federal judge in Texas just enjoined the enforcement of the Corporate Transparency Act. This is very significant if it holds up on appeal.
news.bloomberglaw.com/daily-…
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GF: He’s been gone for days “golfing”with his buddy. He must be doing something shady.
BF:
This quoted post is unavailable.
Sander Zagzebski retweeted
BigLaw associates following me:
Let this be a warning to you.
As an 8-year plus attorney, you need to be able to sell, market, network, lead entire projects from start to finish with quality, manage a team… essentially be self sufficient.
Most firms have you on a bill, bill, bill treadmill where your head is down, door is shut, and you’re only thinking about your pace to hitting 2,000 hours, effectively building none of these skills.
It’s the incentive structure that they create to maximize profit per lawyer, not to maximize your career.
You have to pick your head up and demand more early (starting in year 3, but especially in years 5 plus), but it’s also up to you to do more than the bare minimum.
If you’re going to make partner at an elite firm, you have to make a name for yourself inside the firm first, then outside the firm to clients and the practice area community you serve next.
If you can’t do this at your current firm, switch firms and consider going down market (it’s not a terrible as you think!).
If you don’t, you’ll end up like this individual… with a niche skillset (Rule 144A bond offerings or something weird and inapplicable to 99.9% of people) with bloated salary expectations and insane lifestyle demands but no real-world transferable skillset.
This works out OK when the wind is at your back and there is high demand for your service, but it works out terribly when that demand dries up and your firm tosses you out.
Oh… and, by the way, they’ll toss your ass out the very second it’s to their benefit.
Don’t get left flat footed.
Good thread from @sbabmarks on deal killers in smaller M&A deals. Worth absorbing if you’re a buyer, seller or service provider.
I know this thread has a lot in here about deal killers and I hope you have found value. I also hope it prevents your deal from imploding in the future as well.
Please like, share and re-post if you feel others might find value as well
@sbabmarks
