Acquiring a $7m Niche Marketing Agency with 50 Employees

I just, you know, we're, we're six months in and I think about like two years from now, you know, how do you make sure that the owner, regardless of who it is, like, still really, you know, is invested in the business, that they potentially hop on sales calls and whatnot. And like. So I have, there's been no issues with that piece at all.

I just have already started to think long term and you know, certainly if I was advising someone, you know, I think that's probably the sweet spot and it's probably worth it, especially if that maybe decreases how much you have to take on a loan or cash at close.

So it's not just about that equity piece, it's about, and, and in some ways, I mean, probably, I mean, the earnout is more immediate because he'll get compensated that earn out progressively in, in the months post transaction, whereas that equity piece might not, he might not see any money from that until you go off and sell the business years from now. So the, and the earnout is significant in…

Yeah, that's, that's a great point. Yeah.

And Rob, just this point about the tripwire of the 20%. So searchers will recognize that in the SBA loan context, where if somebody is on the cap table of a deal where there's an SBA loan and they own more than 20%, they too are under a personal guarantee. And so there's always this incentive to keep people under 20%.

But you're. Actually, I didn't, what I didn't realize until talking to you is that, that, that that 20% is a magic number in a lot of different kind of commercial and loan products. So to be clear, because yours isn't even an SBA deal, that 20% number still comes up as one that as you said, is a tripwire.

It is, yeah. So like a good kind of like post deal example is if you're going to renew your line of credit or whatnot, they'll look at that and want to see who's on your cap table and what percentage. So you know, if he had been above 20%, he would then have to also sign on, you know, as a guarantor to the line of credit. So you know, certainly wouldn't want to put that onus on him or you know,…

So it's just something to be wary of and kind of gets at that, you know, what's the right balance of, you know, if you do want them on your cap table and you do want them as a partner, like how do you balance enough skin in the game to be excited and motivated, but also kind of protect maybe some of the nuances and the administrative pieces on the financial side.

Great.

I think with the way this is structured, it's probably maybe getting at another learning for me is like I just feel like I over engineered the deal. I think maybe in retrospect you've got a couple levers and maybe I pulled too many of them with earn out equity, role escrow, kind of all these different things you can do.

And I would have preferred just to keep it more simple and straightforward even on just the way things are structured from an earnout perspective of like there's a profitability number to hit and there's a revenue number to hit and there are aggressive numbers too. So just kind of thinking through all those things together, it's probably a good metaphor for how I should run the business. Just…